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sorry, again i do not know why, it would not let me reply to your previous message.
Greenie, a public limited company, buiilds, develops and operates airports, During the financail year to 30.11.2000, a section of an airport collapsed and as a aresult several people were hurt. The accident resulted in the closure of terminal and legal action against greenie. When the financial statements for the year ended 30.11.2000 were being pre[ared, the investigation into the accident and the reconstruction with yje accident. the expert report that was to be presented to the civil courts in order to determine the cause of the accident and to assess the respective responsibilites of the various parties involved, was expected in 2001.
financial damages arising related to the additional costs and operating losses relating to the unavailabity of the building.the nature and extent of the damages, and the details of any compensation payments had yet to be established. the directors of greenie felt that at present, there was no requirement to record the impact of the accident in the financial statements..
compensation agreements had been arranged with the victims, and these claims were all covered by greenies insurance policy.in each case, compensatrion paid by the insurance company was subject to a waiver of ant judicial proceedings against greenie and its insurers. if any compensation is eventually payable to 3rd parties, this is expected to be covered by the insurance policies.
the directors of greenie felt that the conditions for recognisingf a provision or disclosing a contingent liability had not been met. therefore, greenie did not recognise a provision in respect of the accident nor did it disclose any related contingent liability or a note setting out the nature of the accident and potential claims in its financial statements for the year ended 30.11.2000.
in here, ias 37 recognises a contingent liability if the obligating event is uncertain and amounts are not measured reliably
for contingent asset to be recognised, the possible asset that arises from past events and whose existence will be confirmed only by the occurance or non occurance of one or more uncertain future events. does this mean that expenditure will be recognised if it has caused future events?
in terms of insurance, if the expenditure is expected to reimbursed from 3rd parties and is virtually certain that reimbursement will be recieved, does that mean a contingent asset is recognised. ?
I would think (from reading your post and not re-reading the actual question) that this is a situation where openness and transparency would dictate that full disclosure of the facts and progress should be brought to the attention of the members by way of note.
There clearly is a contingent liability because of your posted extract beginning “financial damages arising related to the additional costs and operating losses relating to the unavailabity……”
It’s not providable because we don’t know what the expert is going to say next year and how much blame is apportioned to Greenie so we are unable to put in a reliable estimate.
If there is any compensation payment to an injured person still not paid at the year end, that should be shown as a provision (reliable measurement?)
If there is still an amount payable “if any compensation is eventually payable to 3rd parties, this is expected to be covered by the insurance policies.”…..again, I suggest a disclosure note (cannot reliably measure) including all material facts about the incident together with an explanation of the circumstances which prevent reliable measurement and provisioning
The expectation of these amounts being covered by insurance could be viewed as either virtually certain or merely probable. But the treatment will be the same – disclose – because we are still not able to measure reliably
I think that answers it but, if not, post again
in the solutions it states that disclosure is not appropriate. im confused.
So there is a contingent assets arising due to the fact that it is mostly virtually certain that the 3rd parties will cover the damages? but however it cannot be reliably measurable until next year ( when the damages are announced by the expert), but disclosure of the incident and the validity of maintenance reports may be required.?
That’s the route that I would take – if it’s not reliably measureable, then disclose with FULL explanation.
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