In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney assessed that it is probable that the company will win the case with P4,500,000 as the best estimate of the reward. 2010
In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney assessed that it is probable that the company will win the case with P4,500,000 as the best estimate of the reward. 2010
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 6MC
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Buwis Buhay Incorporated had several outstanding obligations on December 31, 2019. The brief descriptions listed below can be ascertained from these liabilities. What is the correct treatment for the court case that happened on June 2019?
a. Recognize as a provision since the outcome is probable.
b. Disclose as a contingent liability since the amount of P4,500,000 is only 45% of P10,000,000.
c. Recognize as contingent gain since Buwis Buhay is probable to win the case.
d. Disclose as contingent asset because of probability.
Transcribed Image Text:In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney
assessed that it is probable that the company will win the case with P4,500,000 as the best estimate
of the reward.
In August 2019, Baguio City brought an action against the company for polluting the surrounding
rivers with its waste products costing P5,000,000. It is probable that Baguio City will be successful
but the amount of damages Buwis Buhay might have to pay is not to exceed P2,500,000.
In December 2019, another litigation case amounting to P20,000,000 was filed against Buwis Buhay
for injuring pedestrians due to its renovation projects within the premise. This court case is seen to
have remote likelihood of occurrence because the evidences filed are not strong.
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