time. For manufactures of any product from food to medicine to vehicles, they must create items that are safe to use. This is not only necessary to long term brand value and company success, but it is required by law. Perfection is the goal; however product failure and defects always occur, especially in advanced products such as vehicles. According to the statics, we found that Ford used to face the serious lawsuit with their tires; Toyota lost a fortune by recalling of their defected vehicles. (MotorTrend, 2011) For the multinational companies, it will be necessary for them to set up the contingency account to manage the crisis whenever possible. It will be tremendous amount of loss when they find themselves facing the charges. Contingency …show more content…
The warranty policy was established by FASB, which specifies the range from guarantees of leases, loans to stock price and letters of credit (Week, 2013). With the times goes by, the FASB replaces all of the old warranty policy with a single Accounting Standards Codification (ASC). In this new policy, it supersedes the original rules and specifies every detail of preparing the information related to warranty. (Week, New Warranty Accounting Standards, 2013) The definition of contingency under ASC Topic 450-10-20 of FASB states that an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an entity that is ultimately resolved when one or more future events occur or fail to occur (Financial Accounting Standards Board, 2009). Not all the uncertain situations are considered as contingencies; there are several situations that are not contingencies, such
Under FASB ASC 805-10-25-23, acquisition related costs in business combinations are reported as an expense at the time of their occurrence by the acquiring company. This was a change from the previous way of capitalizing acquisition related costs for all business combinations and was established for all business combinations complete on or after January 1, 2009. This was a needed change in accounting because the acquisition costs do not represent a future value, are not a part of the value of the business being purchased, and would be expensed if the decision was made not to acquire the company being evaluated.
The large number of handlers in the process of manufacturing and packaging a product typically makes it difficult to prove when and how the manufacturer was negligent.
A contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization.
According to ASC 450-20-25-1, “When a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. As indicated in the definition of contingency, the term loss is used for convenience to include many charges against income that are commonly referred to as expenses and others that are commonly
A loss contingency as per ASC 450-10-20 is “An existing condition, situation, or set of circumstances involving uncertainty as to possible loss to an entity that will ultimately be resolved when one or more future events occur or fail to occur. The term loss is used for conveniences to include many charges against income that are commonly referred to as expenses and others that are commonly referred to as losses.” Contingent liabilities depend on the occurrence of one or more future events to confirm the: amount payable, the payee, the date payable, or its existence.
“Resolution of the uncertainty may confirm any of the following: b. the reduction of a liability… d. The incurrence of a liability” says ASC 450-10-05-5. Also, ASC 450-30-25-1 shows that “A contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization.” This information shows that the company can record the reduction of the loss contingency in 2011, after the appellate judges reclined W Inc.’s rehearing because this is the resolution of uncertainty.
50-3 Disclosure of the contingency shall be made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred and either of the following conditions exists:
ASC 450-20-50-3: Disclosure of the contingency shall be made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred and either of the following conditions exists: a. an accrual is not made for a loss contingency because any of the conditions in 450-20-25-2 are not met. b. an exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 450-20-30-1.
35. A gain contingency is an existing uncertain situation that might result in a gain, which often is the flip side
Entity-wide disclosures are required under Accounting Standards Codification (ASC) 280-10-50-40 through 280-10-50-42. The disclosures are required because every corporation does not report information in a similar fashion, and the disclosures would provide comparability of the financial statements among entities. For example, if a corporation uses a geographic approach in its financial statements, disclosing certain information about the products or services sold will make comparability to other companies much easier. The disclosures will also help with comparability within an entity if they decide to choose another method of reporting operating segments in the future. There are three types of entity-wide disclosures; products and services, geographic areas, and/or major customers. Every public company has to comply with the disclosures, even if the company has one reportable segment. The only exception to the entity-wide disclosures is if it is impractical to provide the information, such as it would be extremely costly to the corporation, or if the “internal reporting systems are not capable of gathering financial information by product or service by geographic area.” A disclosure should be made when entity-wide disclosures are impractical.
As indicated in the definition of contingency, the term loss is used for convenience to include many charges against income that are commonly referred to as expenses and others that are commonly referred to as losses. The Contingencies Topic uses the terms probable, reasonably possible, and remote to identify three areas within that range.
Ensures consumer goods are always in best possible mechanical condition. Major Drawback of Purchasing
As the economy changed over the years they found the company would need to change or their business would fail. This is why they incorporated the contingency perspective.
Many people may not be able to fully process information about the safety and risk about products. The organizations that attempt to make products that are safe have a difficult time competing with those who provide unsafe products at cheaper prices. Just how safe a product is can be difficult for any company to determine and is compounded by the cost of making the products safe. Costs of manufacturing safe products extend to the total price of the product and can the company economically.
As if this weren’t enough, quality problems mounted week after week. Only months later in February 2010, the NHTSA revealed that it had received claims citing another life threatening defect in the break system for the Toyota Prius. More than 400 thousand Prius recalls resulted. In April of 2010, customers reported handling issues in the Lexus brand which resulted in another recall of 9,400 Lexus cars and a “Don’t Buy: Safety Risk” rating from Consumer Reports. Also in April, the company voluntarily recalled Siennas to address a problem with corrosion on a spare tire cable. Later that month, Toyota voluntarily recalled 2003 Sequoia SUVs to improve the stability controls. 2010 Tacomas were also recalled for defective front drive shafts. Once the quality icon, Toyota had hit a really low point; so low that credit