Chapter 11 Contingency

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• Chapter 11 Contingency

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Contingent

• 1.concept
• past transactions or events of a
  situation, the results by the occurrence of
  uncertain future events occur or not be
  confirmed.2.feature
• the formation of the past, present
  uncertain future confirmed.

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• (1) transactions or events from the past, is
  the existing situation or a matter of past
  transactions or events caused by the
  objective.(2) the result is uncertain, is
  whether the outcome of the matter or the
  occurrence of uncertainty, or expected outcome of
  the matter or will occur, but the specific time
  or place the amount of uncertainty
• (3) matters decided by the future, is the
  outcome of the matter or only by the occurrence
  of uncertain future events or non-occurrence can
  be determined.

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• 3. Probability
• the likelihood of the results
  the corresponding probability interval
• Sure 95lt 100
• Probably 50 lt 95
• Maybe 5 lt 50
• Minimum possible 0 lt 5

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Common contingency

• Pending litigation or pending arbitration
• Debt guarantees
• Product quality assurance (including product
  safety assurance)
• Commitment
• Loss of contract
• Restructuring obligations
• Environmental remediation

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Forms of contingency

• As a matter or situation, the enterprise may be a
  potential rights, but also may be a real or
  potential obligations. The specific form of the
  following three
• Potential rightscontingent asset
• Potential obligationscontingent liability
• Real obligationAccrued liabilities

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Contingent liability

• The concept of contingent liability
• Refers to past transactions or events of
  potential assets, there must by its uncertain
  future occurrence or non-occurrence to be
  confirmed.
• The feature of contingent liability
• Transactions or events from the past
  generation.Results (that is, whether the
  formation of corporate real asset) is
  uncertain.Results required by the occurrence of
  future events occur or not can be confirmed.
• The principles of contingent liability
• Based on considerations of prudence, or the
  possibility of realizing how both assets are not
  recognized.

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Contingent liability

• The concept of contingent liability
• Refers to past transactions or events of
  potential Or assets, there must by its uncertain
  future occurrence or non-occurrence to be
  confirmed.
• The feature of contingent liability
• Generated by the past transactions or events.
• Results (that is, whether the formation of
  corporate real asset) is uncertain.
• Results required by the occurrence of future
  events occur or not can be confirmed.
• The type of contingent liability
• asset management principles
• Based on considerations of prudence, or
• the possibility of realizing how both Or assets
  are not recognized.

How to determine?
Conceptually,what is theDifferences and
similarities between liability and contigency
liability
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Accrued liabilities

• Conditions the current obligations, it is
  possible, a reliable measurement
• (1) the obligation is a present obligation of
  enterprises. No other realistic option companies
  can only fulfill this obligation, such as the law
  requires business imperative, the parties should
  reasonably be expected to perform other
  companies.
• (2) the obligation is likely to lead to an
  outflow of economic benefits, usually refers to
  the performance issues associated with current
  obligations, leading to the possibility of
  outflow of economic benefits over 50.
• (3) the amount of the obligation can be reliably
  measured.

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Determine the best estimate

• There is a continuous range of expenditure
  required, and the range of results likelihood of
  the same. The best estimate should be in
  accordance with the midpoint of the range
  determined
• Other cases or involves a single project, the
  amount determined according to the most likely to
  occur. involves several items, according to
  various possible outcomes and associated
  probabilities calculation.
• Determine the best estimate should pay attention
  to the problem
• Matters related to risk and uncertainty
• Time value of money
• Related to the impact of future events
• Related to the disposal Or assets should not be
  considered to form the expected profits

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Process of the expected to receive compensation

• Basic principles
• Corporate debt is expected to settle all or part
  of the expenditure required compensation by a
  third party, basically determine the amount of
  compensation can only be received as an asset
  separately recognized
• Confirm the amount of compensation should not
  exceed the book value of projected liabilities.

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Book value of liabilities is expected to review

• Enterprises should be in the balance sheet date
  is expected to review the book value of
  liabilities.
• There is strong evidence that the book value does
  not reflect the current best estimate shall be in
  accordance with the current best estimate of the
  adjusted book value.

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Related accounting treatment

• 1.estimated to confirm
• non-operating expense
• general and administrative expenses
• selling expense
• accrued liabilities
• 2. According to the current best estimate of
  adjusted book value of liabilities is expected to
• non-operating expense
• accrued liabilities
• 3. actual liabilities
• contingency liability
• cash in bank
• 4. Liabilities did not occur
• reversal of the book value of expected
  liabilities
• 5.adjustment of tax matters

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Product quality assurance

• Should pay attention to the problem
• 1.If you find the actual amount of guarantee
  fees and the number is expected to vary widely,
  the proportion is expected to be timely adjusted.
• 2.If the business is expected to determine
  the specific batch of product liability, the end
  of the warranty should be 'projected liabilities
  - Quality Assurance "written off the balance of
  subject
• 3.Have confirmation of the projected
  liabilities of its products, if the enterprise is
  no longer produced, then they should be the
  appropriate quality assurance period, should be
  'projected liabilities - Quality Assurance
  "written off the balance of subjects.
• 4.Tax adjustments

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Loss of contract

• Loss of contracts accounting principles
• 1.If the obligations associated with the
  loss of the contract without paying any
  compensation can be withdrawn, usually there is
  no real corporate obligations, not confirmation
  of the projected liabilities
• 2.If the obligations associated with the loss of
  an irrevocable contract, there is a real business
  obligations, if the obligation is likely outflow
  of economic benefits and the amount can be
  reliably measured, it shall confirm the expected
  liabilities
• 3.Loss of the contract there is the underlying
  asset, it should be tested for impairment on the
  underlying assets, an impairment loss in
  accordance with regulations, in this case, the
  companies usually do not need confirmation of the
  projected liabilities, if the impairment loss
  exceeds the expected loss should be more than
  recognized as part of expected liabilities
• 4.Loss of the contract there is no underlying
  asset, a loss is expected to meet contractual
  obligations related to the obligation and the
  conditions, it should be confirmation of the
  projected liabilities.

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Restructuring obligations

• Re-measurement of obligations
• Enterprises shall, in accordance with the
  Restructuring expenses related directly to
  determine the expected liabilities ?
• Should not be considered late loss of profits
  related to the disposal Or assets.
• Direct expenditures do not include expenses
  related to activities.

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The disclosure of matters

• In addition to the minimum possible outflow of
  economic benefits liabilities of the enterprise,
  the enterprise should disclose the liabilities
  related information.
• Companies usually should not be disclosed assets.
• However, Or assets is likely to impose an
  economic interest, it shall disclose the reasons
  for its formation, the financial impact is
  expected to produce.
• In pending litigation, pending arbitration cases,
  according to the aforementioned requirements of
  disclosure of all or part of the information
  expected to cause significant adverse impacts,
  companies need not disclose this information.
• It should be disclosure of the pending
  litigation, pending the nature of arbitration,
  and did not disclose the facts and causes of such
  information.