17.01 Contingencies & Commitments Flashcards
What is a contingency?
A contingency is an existing condition (at the balance sheet date) involving uncertainty as to the outcome and will be resolved when a future event occurs of fails to occur.
What are the two types of contingencies?
Contingent losses and contingent gains.
What is the recognition of a contingent loss?
Recognition depends on the probability of those losses occurring.
What is the recognition of a contingent gain?
Not recognized until the underlying gain-causing event occurs.
What are examples of loss contigencies?
Obligations related to product warranties; Pending or threatened litigation; Obligations related to product defects; Threat of expropriate of assets.
What are the three categories of probability?
Probable; Reasonably possible; Remote.
What does probable mean?
The probability of occurrence is considered very high or a near certainty.
What does reasonably possible mean?
The probability of occurrence is neither very high nor remote. In other words, when probability of occurrence is considered along a spectrum of possibilities, the probability of occurrence is not at either end of the spectrum but is in the large middle section of the spectrum.
What does remote mean?
The probability of occurrence is considered to be very low or, as the name implies, remote.
When are contingent losses accrued?
Is the probable loss estimable? No - disclose but do not accrue
Is the probable loss estimable? Yes. Is there a most likely estimate for the amount of loss? No - minimum amount within the range of potential losses is the amount accrued.
Is the probable loss estimable? Yes. Is there a most likely estimate for the amount of loss? Yes - best estimate within the range of potential losses is the amount accrued.
