M International Loss Contingency

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).

The company should report the change in the contingency accrual as a 2009 event due change in estimate. ASC 250-10-45-17 specifies that “a change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts reported in financial statements of prior periods.” Additionally, ASC 450-20-25-7 indicates that “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”.

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:

The Law firm won the case in the end with the verdict that Pacific Gas & Energy had to compensate the plaintiffs in the amount of $333 million for damages (cornell.edu web site).

Judgement/Disposition: Yes, the order of the Appellate Division that invalidated the ESDC’s determination was reversed, with costs, and the petitions were dismissed.

The firm took the case and went to work. The first hearing ruled that Beatrice Foods wasn’t to be held accountable, just W.R. Grace Company,

“Recognition of an impairment loss and the recognition of a gain on the extinguishment of debt are separate events, and each event should be recognized in the period in which it occurs. The Board believes that the recognition of an impairment loss should be based on the measurement of the asset at its fair value and that the existence of nonrecourse debt should not influence that measurement.” (Statement 144, paragraph B34)

The cost of $1.3 million related to early lease termination should not be included as liability on the Pharma Co. December 31, 2010 Balance Sheet. According to ASC420-10-25-12, a liability for costs related to termination of the operating lease before the end of its term shall be recognized when contract is terminated. The termination date of the contract could be the date of written notice sent to the counterparty or the date when entity negotiated a termination with the counterparty. In this case, the date of termination is not stated

2. Even though the judgment required M to pay W $18.5 million on September 24, 2009, M filed a Notice of Appeal with the Court of Appeals in November 2009. Thus, the $18.5 million is not the fixed amount of loss to record yet.

A loss contingency as per ASC 450-10-20 is “An existing condition, situation, or set of circumstances involving uncertainty as to possible loss to an entity that will ultimately be resolved when one or more future events occur or fail to occur. The term loss is used for conveniences to include many charges against income that are commonly referred to as expenses and others that are commonly referred to as losses.” Contingent liabilities depend on the occurrence of one or more future events to confirm the: amount payable, the payee, the date payable, or its existence.

1. Should the information pertaining to actual claims incurred as of the balance sheet date that became available after the balance sheet date be considered in determining management’s best estimate of the medical benefits payable? If so, how does this information impact the amount recognized or disclosed?

33. A contingent liability is recorded only if a loss is at least reasonably possible and the amount can be

Usually, these remaining uncertainties can be accounted for by estimating and recording allowances for anticipated returns and bad debts, thus allowing revenue and related costs to be recognized at point of delivery. But occasionally, an abnormal degree of uncertainty causes point of delivery revenue recognition not to be appropriate. Revenue recognition after delivery sometimes is appropriate for installment sales and when a right of return exists.

On 10/13/16, IAT received an adverse verdict in the amount of $2,305,376, with the likelihood of the plaintiff being awarded additional monetary damages. IAT reported their course action was to attempt settlement to mitigated any further awards and if necessary file an appeal.

Based on this information, only an immaterial amount of companies actually accrue a liability in their financial statement. Therefore, M Corporation will simply provide disclosure of the contingency and an estimate of the possible loss or range of loss for the future pending litigation in its 2007 financial statement under Note: Contingencies and Commitments. If M Corporation accrued a liability on its 2007 financial statements, then the company becomes too transparent to opposing counsel and it could have serious adverse effects on M’s operations.