Memo Date: July 15, 2015 To: M International From: Team 17 Re: Accounting for a Loss Contingency for a Verdict Overturned on Appeal M International and W Inc. have been engaged in long-standing litigation over a specific patent infringement matter. Pertains to the accounting for this contingency loss, this memo has made the following conclusions: 1. For the year-end December 31, 2007, financial statements, M should record $17 million as a liability. 2. M should adjust its liability for the year-end December 31, 2009, financial statements. $1,500,000 should be recorded. And this adjustment should be considered a 2009 event. 3. M should record 18.5 millions of dollar as a reduction of the previously recorded loss contingency in 2010. 1. …show more content…
“FASB ASC 450-20-25 Recognition Events After the Date of the Financial Statements 25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.” Even though the claim was first filed in 2007, the jury trial which leads to additional $1.5m contingency loss happened in 2009. Thus, the adjustment should be recorded an event in 2009. 3. Should M record the reduction of the previously recorded loss contingency in 2010 (upon the Court of Appeals overturning the verdict of the jury) or 2011 (once the appellate judges declined W’s petition for a re-hearing)? Since the Court of Appeals issued a ruling in favor of M’s appeal and reversed the lower court’s ruling on the matter in 2010, which means the Court of Appeals overturned the jury verdict and the $18.5 million judgment against M. As ASC 450-20-25-2 states, an estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met: a. Information available before the financial statements are issued or are
1. The first issue is whether the trial court erred in denying Greer's motion for summary judgment on the grounds that Mr. Austin's will contest was barred by T.C.A. § 32-4-108 (Supp. 1991).
As discussed above, if indicators of impairment exist for an asset (group) to be held and used, an entity determines whether the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question is less than its carrying amount. If those undiscounted cash flows are less than
Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.
As per ASC 450-20-25-2, an estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
No, Mr. Estefan would not be able to take a deduction would not follow-through. He would be able to carryover a of $ 5,000 loss.
ASC 450-20-25-2 An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
True/False Indicate whether the statement is true or false. ____ 1. Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000. Even though § 351 applies, Tina may recognize her realized loss of $10,000. 2. To determine E & P, some (but not all) previously excluded income items are added back to taxable income. 3. Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.
If a reasonable estimate of a known or probable loss cannot be made, but a range of probable losses can be estimated, the low-end of the range of losses is recognized if no amount within the range is a better estimate than any other. If a loss is reasonably possible, but not probable and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. The Company expenses legal fees as incurred. When determining the estimated probable loss or range of losses, significant judgment is required to be exercised in order to estimate the amount and timing of the loss to be recorded. Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with incomplete facts and information. The final outcome of legal proceedings is
The amount of contingency loss is accrual basis, and should be disclosed under financial statement disclosure when it is likely paying the settlement and the amount is estimated. Lawsuit loss and lawsuit provision should be recorded accordingly. Under ASPE the lawsuit is recognized as a liability when it is probable and measurable.
Certain provisions outside of Subchapter K affect the amount of loss that an individual partner can deduct in any given year. Two major provisions are the at risk limitations and passive loss rules which are next. At risk limitations Although a partner may have sufficient basis to claim a loss, at risk limitations may restrict a partner from deducting losses where there is no financial risk of loss. IRC Sec. 465(a) A partner's at-risk amount generally includes his adjusted basis in the partnership taking into account only those liabilities for which the partner has personal liability. This is in contrast to a partner's outside basis computation which may include the partner's share of all partnership liabilities without regard to any personal liability on the obligations, Thus, a partners outside basis may include both recourse and nonrecourse liabilities,
1) Not in accordance with GAAP because they didn’t disclose loss in footnotes, highly material, Adverse.
The work being done by the EITF with company’s accounting and financial reporting is likely to be impacted by the work being done by the EITF on Issue No. 13-C, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists." A company's accounting and financial reporting will be impacted by the work being done by the EITF in two ways. First, if the liability for an unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in the recognition of Net Operating Loss carry-forward for that year and that Net Operating Loss carry-forward has not been used, the unrecognized tax benefit will be presented as a reduction to the Net Operating Loss. In this case the Income Statement is impacted and the Net Operating Loss is reduced. Second, in all other case the Net Operating Loss carry-forward or the Tax Credit Carry-forward should be presented as a liability. In this case the Balance Sheet of the company will be impacted. (www.fasb.org)
1. The estimated loss of $30,000 was accrued in the 2011 financial statements but the actual loss is recognized as $50,000. The financial statements should be adjusted and disclosed to reflect the total loss of $50,000.
Probably the company is too conservative in its accounting for this transaction. The expense recognition principle indicates that expenses should be allocated to the appropriate periods involved. In this case, there appears to be a high uncertainty that the company will have to pay. FASB ASC 450-20-25 requires that a loss should be accrued only (1) when it is probable that the company would lose the suit
“At the end of last financial year, an exceptional accounting loss of £155m post tax was booked in respect of the hedges. The above settlement of the majority of the hedges results in a further £119m post tax exceptional loss which will be taken in the current year,” the company said in a statement.