Question

Huprey Co. is the defendant in the following legal claims. For each of following claims, does Huprey (a) Record liability. (b) Disclose in notes, or ( No disclosure. 1. Huprey is very likely to lose a pending lawsuit. It reasonably estimates that damages paid will be $1 million • Record liability No disclosure. Disclose in notes 2. There is a remote (unlikely) chance Huprey will lose a pending lawsuit. The plaintiff is suing Huprey for $5 million Record liability No disclosure Disclose in notes 3. It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimable Record liability No disclosure Disclose in notes

Answer 1

Answer Record liability A contingency loss which is both probable and amount can be reasonably estimated, then both the concrned expenses or loss and liability should be recorded in the income statement and balance sheet respectively. 2) Answer No disclosure A contingency loss which is remote will not recorded in the books of accounts and no disclosure to be made in the notes to financial statements. 3) Answer Disclose in notes A contingency loss which is possible but the amount of loss cannot be reasonably estimated, then no liability should be recorded. However It will be disclosed in the notes to the financial statements.