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Hi Mike!
I have watched your lectures but has not understood the following:
1.In contingent assets and liabilities, it says “occurrence or non occurrence of one or more uncertain events”. What does that mean?2.” reduce the pernumbra areas of divergent possibilities”. What does that mean?
Thanks.
The matter will only become an obligation if something (that is, at the moment, uncertain) happens in the future
But equally it could become an obligation if something (that is, at the moment, uncertain) doesn’t happen in the future
If you have given a guarantee to cover the insolvent position of a subsidiary, and the subsidiary is highly solvent, then that’s a possible liability that will only become a fully-fledged obligation if the subsidiary becomes insolvent in the future – an event the occurrence of which, at the moment, is uncertain
If you have started a legal action against a competitor for breach of patent rights, and you expect to win your case, there is a contingent liability for you to pay the court costs and both your and their legal costs in the event that you lose the case – an event the occurrence of which, at the moment, is uncertain
“occurrence (subsidiary becomes insolvent) or non occurrence (failure to win your legal battle) of one or more uncertain events”
“reduce the PENUMBRAL areas of divergent possibilities”
The penumbra has the same root as umbrella and indicates shade so something that reduces the penumbral areas of divergent possibilities is something that reduces those shady areas of accounting where the acceptable treatment of a matter could have a number of alternative solutions
OK?
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