Consider the following independent situations. For each of the situations described, suggest the appropriate accounting treatment for recording the liability. Back-up your answer with reference to the appropriate recognition criteria and disclosure requirements for liabilities, as per AASB 137. a)A manufacturing company is being sued by a customer group for losses sustained due to a faulty product design. The company’s lawyers feel the suit will likely succeed, but they cannot estimate the potential amount of damages that will be awarded. B)A resource company is obligated by municipal regulations to clean up the site of an active drilling operation in 10 years’ time when the resource has been fully extracted. The company is in its first year of operations and has no previous experience in cleaning up drilling sites C) A mining company has determined that it will cost approximately $10 million to restore a site that it previously mined

A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided not to report it in the notes to the financial statement, what effect would this have on the financial reporting of the company? A The liabilities on the balance sheet would be understated B The information about the item would be inadequately disclosed in the notes C The net income of the company would be understated D There would be no effect

In reviewing of subsequent events, you learned of heavy damage to the client’s warehouse due to a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper described the event in detail. The client made adjustment to related inventories and buildings to reflect the loss. Assume im a auditor, and I am giving opinion.  Since the client made adjustments to related inventories and buildings to reflect the loss after a heavy damage. However, it is a non-adjustable subsequent event, the company is not supposed to adjust the entries. Also, they haven’t claimed to make any footnotes to explain the crisis, which is inadequately disclosed, which both are accounting disagreements, since it is heavy damage, so both are supposed to be highly material, so adverse opinions should be issued. If the client did disclose the footnotes to explain the crisis, adverse opinions with explanatory opinion should be issued.  Is adverse opinion with explanatory paragraph…

Which of the following statements is false?   Under IFRS, expenses include losses that are not the result of ordinary activities. Under IFRS, it is mandatory to report property, plant, and equipment at historical cost. The number of financial statement elements in the IFRS conceptual framework are not equal to those in GAAP. The existing conceptual frameworks underlying GAAP and IFRS are very similar.                         Icon International, a software company, incorporated on January 1, 2019 is planning to convert to IFRS. The company decided to present its first IFRS statements for the year ended December 31, 2021. What is the transition date of Icon International? January 1, 2019 January 1, 2021 December 31, 2021 December 31, 2019   Icon International, a software company, incorporated on January 1, 2019 is planning to convert to IFRS. The company decided to present its first IFRS statements for the year ended December 31, 2021. What is the reporting date of Icon…

Indicate whether each of the following statements is true or false. An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future cash flows from the use of that asset.  Answer The economic performance of an asset being worse than expected can be viewed as an external indicator of impairment of asset values for property, plant and equipment.  Answer Under IFRS, an impairment loss can be reversed when estimates change.

In which of these situations might moral hazard arise?a) Insurance companies fail to calculate the risks of accident correctly.b) A company receives an exemption from pollution control legislation.c) A sports team accepts bribes which affect their performance in a game.d) A group of households makes a collective purchase of flood insurance

The realization principle underlies the accounting practices of depreciating plant assets and amortizing the cost of unexpired insurance policies.  True  False

What type of auditor report would be issued in each of the following cases? Justify your choice. Bowles Company is engaged in a hazardous trade and cannot obtain insurance coverage from any source. A material portion of the company’s assets could be destroyed by a serious accident.   Drave Company owns substantial properties that have appreciated significantly in value since the date purchase. The properties were appraised and are reported in the balance sheet at the appraised values with full disclosure. The CIAs believe that the appraised values reported in the balance sheet reasonably estimate the assets current values.   The CIA firm is auditing the financial statement that are to be included in the annual report to the stockholder of Eagle Company, A regulated company Eagle’s Financial Statement are prepared as prescribed by a regulatory agency of the Pakistan Government and some items are not presented in accordance with generally accepted accounting principles. The amounts…

1. A manufacturer of household appliances has potential costs due to the discovery of a defect in one of its products. The occurrence of the loss is probable and the costs can be reasonably estimated. This present obligation should be: accrued and disclosed as a liability. neither accrued nor disclosed as a liability. accrued as a liability but not disclosed. disclosed but not accrued as a liability. 2. A contingency that need not be disclosed in the financial statements or in the notes thereto is: pending litigation. possibility of strike. deficiency tax assessment. note receivable discounted. 3. A loss contingency that should be accrued is: note receivable discounted. pending lawsuit. tax in dispute. estimated claim under a service warranty on new products sold. 4. An item that is not a contingent liability is: premium offer to customers for labels or box tops. accommodation endorsement on customer note. additional compensation that may be payable on a dispute now being…