Contingencies, Commitments, and Guarantees

Question 1

If a range of loss is noted and no other number is better than the other, what amount to accrue?

Answer 1

When no amount within the range is a better estimate than any other amount, it is required that the minimum amount in the range shall be accrued.

Question 2

How do you record a loss?

Answer 2

Remote-Don’t accrue/Don’t Disclose
Resonably possible-Don’t Accrue/Disclose
Probable-Accrue/Disclose

Question 3

How do you record a gain?

Answer 3

You Don’t due to conservatism

Question 4

How do you record the ARO Liability?

Answer 4

requires the initial liability at PV to be increased to the expected cash flow adjusted for market risk and inflation
Note:
JE to record Initial ARO@PV
DR Asset
  Cr ARO
JE to record mothly expense
DR Accretion Expense
    CR ARO
(At end of ARO life, the ARO is to be increased from PV to the adjusted market risk and inflation)

Question 5

Under IFRS, which of the following measurements is allowed to estimate and report the liability for the cost of settling a lawsuit?

Answer 5

When a range of amounts that may be lost in a lawsuit are established, the best number in the range must be chosen to accrue. The chosen amount must always be discounted to present value.