Question

IFRS: Contingency Liabilities (Provision)

A. In June 2019, a costumer at ABC Corp slipped on a wet floor and broke a hip. The costumer sued the corporation in July,2019. The company’s attorneys believe that it is 55% likely that ABC will lose this case. Management concludes that the 55% likelihood of incurring the loss is less than probable. The attorneys estimate that the loss will range between $500,000 and $800,000. There is no best estimate in this range of possible losses. How the company accounted this transaction under IFRS?

B. In June 2019, a costumer at ABC Corp slipped on a wet floor and broke a hip. The costumer sued the corporation in July,2019. The company’s attorneys estimate that the loss will range between $500,000 and $800,000. There is no best estimate in this range of possible losses. The company’s attorneys believe that is 99% likely that ABC will lose this case. How the company accounted this transaction under IFRS?

C. A new product liability lawsuit was files related to the drug of the ABC Pharmacy, the attorney’s asses the likelihood of losing of 10%. The attorney assessment is between $10,000 and $50,000. How the company accounted this transaction under IFRS?

D. A new product liability lawsuit was files related to the drug of the Pharmacy, the attorney’s asses the likelihood and allows the company to record a loss under IFRS. If the range of estimates is between $30,000 and $50,000. How the company accounted this transaction under IFRS?

E. A new product liability lawsuit was files related to the drug of the Pharmacy, the attorney’s asses the likelihood of losing of 10%. The attorney assessment is between $10,000 and $50,000. How the company accounted this transaction under IFRS?

F.​The company found that one type of TV sold in 2019 had defects. The company sent a press release informing that is going to repair the TV. The company estimates a total cost of $300,000 for the repairs in 2019. The clients have not filed any claim. The company estimates that there is more likely than not that the total payment for repairs will be $2,500,000 after the press release in 2019. How the Company reports this transaction using IFRS? / US GAAP?

Answer 1

Provisions:- (More than 50% chance of happening)

Present legal or constructive obligation as a result of past event

Probable outflow of economic benefits to settle the obligation

obligation can be estimated reliably

Contingent Liability:-

Possible obligation arising out of past event which is going to be confirmed by some future event not wholly within the control of the entity

Present obligations arising from a past event which cant be measured reliably OR outflow of economic benefits is not probable.

1) The company’s attorneys believe that it is 55% likely that ABC will lose this case. This is more probable than not and hence Provision is to be recorded . Maximum possible loss of 800000 will be considered for provision and if there is any further changes , it will be adjusted accordingly in future.

2) The company’s attorneys believe that is 99% likely that ABC will lose this case , hence provision would be created for maximum possible loss of 80000.

3) The attorney’s asses the likelihood of losing of 10% which is just a possible obligation and be confirmed by some future event . Hence, contingent liability would be provided at 50000.

4) As the amount cant be measured reliably , provision at maximum amount will be recorded and further changes to be incorporated , if required.