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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Contingency Conditions and Disclosure

Loss contingencies may exist for companies. Write a short memo that answers the following questions.

Required:

  1. 1. What conditions should be met for an estimated loss from a loss contingency to be accrued by a charge to income?
  2. 2. When is disclosure required, and what disclosure should be made for an estimated loss from a loss contingency that need not be accrued by a charge to income?

1.

To determine

Provide the conditions that must be satisfied for an estimated loss from a loss contingency to be accrued by the charge to income.

Explanation

Contingent liability:

This is an uncertain obligation which might be incurred on a future date as a result of any past transaction. So, the companies should provide provision for such uncertain liabilities in the financial statements.

The conditions that must be satisfied for an estimated loss from a loss contingency to be accrued by the charge to income are as follows:

    ...

2.

To determine

Identify when the disclosure is required and also specify the type of   disclosure that should be made for an estimated loss from a loss contingency that needed to be accrued by a charge to income.

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