Wilhelm Company prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 55 percent chance of losing a lawsuit. Assuming Wilhelm can reliably estimate the amount it would pay if it loses the lawsuit, it should. a. Accrue a liability for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue a liability for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.

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Asked Jan 28, 2020
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Wilhelm Company prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 55 percent chance of losing a lawsuit. Assuming Wilhelm can reliably estimate the amount it would pay if it loses the lawsuit, it should. a. Accrue a liability for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue a liability for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.

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Expert Answer

Step 1

(b)

Under IFRS, disclosing the matter in the notes to the financial statement by not accruing a liability for the lawsuit does not provide the Company W 55% chance of losing a lawsuit. Hence it is an incorrect answer.

 

(c)

Without mentioning the lawsuit in the financial statement or in disclosure notes does not provide the Company W 55% chance of losing a lawsuit. Hence it is an incorrect answer...

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