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Please help me out on this provision question
Sebastian Co is currently involved in four legal cases, all 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
$400,000.
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%
State the accounting treatment for each of the four casesMy solution:
A : Sebastian Co should not recognize nor disclose as the contingent gain is possible.
B: Sebastian Co should disclose a contingent asset as the contingent gain is probable.
C: Sebastian Co should ignore since the transfer of the economic resources is remote.
D: Sebastian Co should disclose a contingent liability as the transfer of economic resources is possible.> 95% is virtually certain
51%-95% is probable
5% to 50% is probable
< 5% is remote.Hi,
A is correct as it is remote, so we do nothing. B is correct as the asset is probable, and not virtually certain.
C is incorrect as we would recognise a provision as it is probable.
D is incorrect too as we would also recognise a provision as it is probable.
Thanks,
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