Question

In: Accounting

DIFFERENTIATE THE FOLLOWING ITEMS WITH REFERENCE TO EXISTING AS & IND-AS: 1) EXTRAORDINARY ITEMS 2) CONTINGENCIES...

DIFFERENTIATE THE FOLLOWING ITEMS WITH REFERENCE TO EXISTING AS & IND-AS:

1) EXTRAORDINARY ITEMS

2) CONTINGENCIES

(ANSWER IN 500 WORDS)

Solutions

Expert Solution

Answer-:

1.) As per AS-5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

Extraordinary items consisted of gains or losses from events that were unusual and infrequent in nature that were separately classified, presented, and disclosed on companies' financial statements. Extraordinary items were usually explained further in the notes to the financial statements. Companies showed an extraordinary item separately from their operating earnings because it was typically a one-time gain or loss and was not expected to recur in the future.

Before 2015, companies put a lot of effort into determining if a particular event should be deemed extraordinary. Gains and losses net of taxes from extraordinary items had to be shown separately on the income statement after income from continuing operations.

An event or transaction was deemed extraordinary if it was both unusual and infrequent. An unusual event must be highly abnormal and unrelated to the typical operating activities of a company, and it should be reasonably expected not to recur going forward. It was common for some businesses to not have this line item presented for years.

Profit or loss from extraordinary activities is such which do not arise under the normal course of business. These activities do not occur regularly. Example: – Profit on sale of fixed assets, Loss due to theft.

The transactions and results under this category are to be disclosed separately in financial statements. The disclosure should be in a manner which clearly shows the effect on overall profits/losses due to these activities.

2.) As per AS-4, Contingencies and Events Occurring After the Balance Sheet Date.

Contingencies are situations or conditions, the eventual outcome of which, profit or loss, would be determined or known only on happening, or non- happening, of an uncertain future event(s).

For a contingent loss, the accounting treatment is determined by likely outcome of such contingency. In case it’s likely that such contingency would result in the loss of the business, then it’s prudent to account for such loss in the enterprise’s financial statements.

In case there is insufficient or conflicting evidence for assessing the value of the contingent loss, then the disclosure in financial statements is provided for the nature and existence of the contingency. Obligations which might arise from the discounted bills of exchange and such similar obligations which are undertaken by the enterprise are usually disclosed in the financial statements by way of notes, even if the possibility of loss is remote.


A Contingent gain isn’t recognized in the financial statements as their recognition could result in recognition of revenue that might never be realized. When the realization of gain is certain and not contingent anymore, the gain can be accounted in the books of accounts.

Determination of the amount of contingencies-:
The value at which contingencies are stated in financial statements depends on the information that is available on a date when the financial statements are considered and approved.

Events which occurs after balance sheet date which suggest that the asset might have been impaired, or a liability might have existed, at balance sheet date are, hence, taken into consideration in recognizing the contingencies and determining the value at which the contingencies are included in the financial statements.

Thankyou....


Related Solutions

1-What is the difference between Discontinued Operations and Extraordinary Items? 2-What is the difference between Deferred...
1-What is the difference between Discontinued Operations and Extraordinary Items? 2-What is the difference between Deferred Charges and Unearned Revenue? 3-Which of the following is not a stock market ratio? A. Earnings per share B. Book value C. Working capital investment D. Dividend Yield
Financial Auditing Please list and discuss the following concerning contingencies: 1. How are contingencies handled by...
Financial Auditing Please list and discuss the following concerning contingencies: 1. How are contingencies handled by GAAP? 2. How do auditors obtain sufficient appropriate audit evidence concerning contingencies? 3. What should the auditor do if the client doesn't follow GAAP concerning contingencies? 4. What should the auditor do if the auditor can't obtain sufficient appropriate audit evidence? 5. What should the auditor do if the auditor can not estimate a contingency and the probability of it occurring is probable?
The following items represent various material contingencies of Luge Co. at December 31, Year 5, and...
The following items represent various material contingencies of Luge Co. at December 31, Year 5, and events subsequent to December 31, Year 5, but prior to the issuance of the Year 5 financial statements. For each item, select from the option list provided the correct reporting requirement. Each choice may be used once, more than once, or not at all. a) Disclosure Only b) Accrual and Disclosure c) Neither accrual nor disclosure d) Accrual of the minimum amount of range...
(Warranties and Loss Contingencies) The following two independent situations involve loss contingencies. Part 1: Benson Company...
(Warranties and Loss Contingencies) The following two independent situations involve loss contingencies. Part 1: Benson Company sells two products, Grey and Yellow. Each carries a 1-year warranty. 1.Product Grey—Product warranty costs, based on past experience, will normally be 1% of sales. 2.Product Yellow—Product warranty costs cannot be reasonably estimated because this is a new product line. However, the chief engineer believes that product warranty costs are likely to be incurred How should Benson report the estimated product warranty costs for...
Contingencies. There are three different approaches 1) recorded ( or recognizes) as a liability. 2) disclosed(in...
Contingencies. There are three different approaches 1) recorded ( or recognizes) as a liability. 2) disclosed(in the notes to the financial statement) 3)not recorded or disclosed. Scenario Batteries4U was a manufacturer of batteries, Portable lighting, and personal care products. Year 1(2009): it was identified as a "potentially responsible party" by a government environmental protection agency and told they might have to share in the cost of an environmental clean-up. Litigation was started. Batteries 4U though the probable outcome would be...
1. What are the requirements to be met when Accounting for contingencies? 2. Explain the difference...
1. What are the requirements to be met when Accounting for contingencies? 2. Explain the difference in Accounting treatment for loss and gain contingencies? 3. Why is there a difference - refer to relevant Accounting principles.
Answer it in detail (1-2 paragraphs) 1. Define a reference frame and then an inertial reference...
Answer it in detail (1-2 paragraphs) 1. Define a reference frame and then an inertial reference frame. Give example of both inertial and non-inertial reference frames. 2. Explain the concept of time dilation. What is the twin paradox? 3. Explain why it is impossible for an object to travel at the speed of light (Hint: evaluate the energy of the object) 4. Discuss the importance of the photoelectric effect in the context of quantum physics. 5. What is the de...
1. Differentiate between an incremental and a differential backup 2. Differentiate the purposes of historical and...
1. Differentiate between an incremental and a differential backup 2. Differentiate the purposes of historical and real-time monitoring.
1. Differentiate between the insurance of indemnity and compensation 2. With vivid examples, differentiate between a...
1. Differentiate between the insurance of indemnity and compensation 2. With vivid examples, differentiate between a debtor and a creditor as it affects the mortgage. 3. Discuss the meaning of Bankruptcy a. What are the types of bankruptcy b. In Canada, what type of court handles bankruptcy matters and why
1- What are the various factors which affect personality development of an ind ividual? 2-Do you...
1- What are the various factors which affect personality development of an ind ividual? 2-Do you think it is possible to change attitudes? if yes, how can attitudes be changed?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT