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Dear tutor,
How to identify that the event is virtually certain in %age terms?Sebastian Co is currently involved in four legal cases, al of them
unrelated.
In Case A, Sebastian Co is suing a supplier for $100,000.
in Case B, Sebastian Co is suing a professional adviser for
$200.000.
in Case C, Sebastian Co is being sued by a customer for
$300.000.
In Case D, Sebastian Co is being sued by an investor for
S400.000.
Sebastian Co has been advised by its lawyers that the probabilities of
success in each case are as follows:
Case & Likelihood of Sebastian Co winning the case
A – 10%
B – 90%
C – 98%
D – 60%As per the solution for case B they say that there is a contingent gain which is “possible” and is to be disclosed in notes as far as accounting treatment is concerned.
How can a 90 Percent probability of winning be not be considered as virtually certain and thus be RECOGNISED as a contingent asset??
Thank you in advance.
Hi,
Contingent assets are disclosed, they would be recognised as an asset if virtually certain. If there is a 90% chance of this case succeeding then it looks like being highly probable but not virtually certain.
In the standard there is no link to percentages, but for things to be virtually certain then we need it to be nearly 100% likely to happen, i.e. we have written evidence that the amount due is going to be paid to us.
Thanks
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