FAR - Specific Transactions, Events, & Disclosures - Contingencies, Commitments, & Guarantees

Question 1

Contingent Liab Principles

Answer 1

based on existing condition, but involve uncertainty about future events

*if event occurs, liab becomes definite liab

Question 2

Recognizing Contingent liab

Answer 2

1) probable/estimated (high occurrence) = accrue liab (record loss/liab)
2) probable/cannot estimate (most likely to occur) = disclose note
3) possible (moderate likeliness) = disclose note
4) remote (no likeliness) = no disclosure
* gain contingencies are not recognized -> footnote only

Question 3

Exampls of Common Contingent liab

Answer 3

1) lawsuits
2) warranties
3) rebates (money back)
4) coupon liab
5) guarantees of indebtedness
6) premiums/coupons
7) liab from business combo

Question 4

Range of values

Answer 4

if 1 value = more likely than others, that amount is accrued

*accrue the lowest amount in range if all are likely to occur

Question 5

Regular warranties

Answer 5

total est. expense recognized in year of sale

portions of warranty liab, a recognized contingent liab, are classified current/noncurrent

Question 6

Rebates/premiums

Answer 6

rebates = cash payments after sale

premiums = inventory items provided to customer after sale

Liab not definite until a request for rebate/premium is received

Question 7

source of contingent liabilities not requiring a current claim by an outside entity for recognition?

Answer 7

unasserted claim

Question 8

accounting treatment of excess actual loss over recognized loss on a contingent liability?

Answer 8

Additional loss in period of lawsuit resolution

Question 9

debited when premiums are redeemed by customers?

Answer 9

rebate/prem liab

Question 10

GAAP vs IFRS

Answer 10

GAAP

1) contingent liab
2) probable
3) lowest amount in range
4) gain must be realized before recognition

IFRS

1) provision
2) more likely than not
3) mid point in range
4) gain provision recognized when virtually certain

Question 11

More likely than not?

Answer 11

greater than 50%

Question 12

definition of provision for IFRS?

Answer 12

Liability that is uncertain in terms of timing and amount but is not of uncertain existence

Question 13

List examples of US contingent liabilities equivalent to provisions under IFRS

Answer 13

1) warranty liab

2) premium liab

Question 14

range of equally probable amounts for a provision, what amount is used for recognition under IFRS?

Answer 14

midpoint range

Question 15

contingent liabilities recognized under International Standards?

Answer 15

they are not recognized