Case 13-08 overview M international (M) and W Inc (W) decided to enter a long term litigation, due to a patent rights violation. M being the demandant and W the respondent. Not enough information was provided in relation to the charges or the patent. To properly understand the events a chronological descripcion of the litigation is to be provided. Events: Problems to be addressed Is necessary to understand the proper and logical accounting literature to address the matter previously presented. The case it self provides a series of matters to be attends, these matters have to be address in accordance to the General Accepted Accounting Principles. Matters to be discussed: * The liability to be recorded by M …show more content…
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. When a loss contingency exists, the likelihood that the future event or events will confirm the incurrence of a liability can range from probable to remote. FASB uses the terms probable, reasonably possible, and remote to identify three areas within that range and assigns the following meanings. * Probable: The future event or events are likely to occur. * Reasonably possible: The chance of the future event or events occurring is more than remote but less than likely. * Remote: The chance of the future event or events occurring is slight. As per ASC 450-20-25-2, entities should accrue an estimated loss from a loss contingency by a charge to expense and a liability recorded only if both of the following conditions are met: * a.
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”.
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:
be described. Jurisdictional requirements for this case as well as the reasons why it was heard at
An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met., b. An exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 450-20-30-1.” Therefore, they also need to disclose the range of the possible loss with some explanation.
Subject: Haig Simmons – Loss recognition on anthracite coal future contracts, capital or ordinary loss
“Resolution of the uncertainty may confirm any of the following: b. the reduction of a liability… d. The incurrence of a liability” says ASC 450-10-05-5. Also, ASC 450-30-25-1 shows that “A contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization.” This information shows that the company can record the reduction of the loss contingency in 2011, after the appellate judges reclined W Inc.’s rehearing because this is the resolution of uncertainty.
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:
In accordance section 465 (2) of the IRC, which states that the loss shall not exceed the indebtedness in the corporation, In this case the at risk limitation is not met since there is no Debt basis because Mr. Estefan did not personally lend money to the company. This is why the stock basis does not include the bank loan of $25,000 from the bank. Although the Mr. Estefan classifies as an active member of the business and that is his sole source of income, he would still have to carryover the loss since all 3 limitations must be met. This is in accordance with section 1366
Speculative risk exists when there is uncertainty about an event that can produce either a profit or a loss.
Definition: Losses from a business operation are limited to the amount of money you can actually lose in the business. You are subject to at-risk rules if you are filing Schedules C, E, or F.
Income or Loss From Partnerships and S Corporations Note. If you report a loss from an at-risk activity for which
b. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The quantitative approach described in the definitions of the terms expected losses, expected residual returns, and expected variability is not required and shall not be the sole determinant as to whether a reporting entity has these obligations or rights.”
the recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.
Contingent Liability is a condition that refers to the possibility of a future event happening and addresses the responsibility of the party liable should the event take place. In today’s real estate market both sellers and buyers may have contingencies stated in the terms and conditions for selling and purchasing a home. The most common contingent liability are guarantees to debt.