Question

#2- Please advise with examples

Discuss the advantages and disadvantages of disclosing gain contingencies for a financial statement user. Why is this information important to the user?

Answer 1

Ans. : Gain contingencies : It is an uncertain situation that will be resolved in future and can result in a gain probably (not certain).

For example : Receipts of money from donation, impending lawsuits decided in favor of company etc.

Advantages of disclosing :

* It can be disclosed in notes to accounts so that misleading information can not be passed to stakeholders.

* Investors can easily take a decision whether to invest in the company or not bravest it gives the true and fair view of financial statements.

Disadvantages of disclosing :

* Some trade secrets will be disclosed by disclosing it like happened in case of coca cola company process.

* Conservative approach will be breached because as per this approach only a realised or accrued gain van be recognised.

This information is important to the user because it make a clear ground for investing in the company or not based on its future perspective.