Question

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Exercise 13-22 (Algo) Various transactions involving contingencles; IFRS (LO13-5, 13-6, 13-7] The following selected circumstances relate to pending lawsults for Erismus, Inc. Erismus's fiscal year ends on December 31. Financial statements are issued In March 2022. Erismus prepares its financial statements according to IFRS. Required: Indicate the amount Erismus would record as an asset, a liability or if no accrual would be necessary in the following circumstances. 1. Erismus is defending against a lawsuit. Erismus's management believes the company has a slightly worse than 50/50 chance of eventually prevailing in court, and that if it loses the judgment will be $2,300,000 2. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If It loses, management believes that damages could fall anywhere in the range of $3,300,000 to $5,300,000, with any damage in that range equally likely 3. Erismus is defending against a lawsult. Erismus's management believes it is probable that the company will lose in court. If It loses, management believes that damages will eventually be $6,300,000, with a present value of $4,800,000 4. Erismus is a plaintiff in a lawsult. Erismus's management believes it is probable that the company eventually will prevail in court, and that if it prevails, the judgment will be $2,300,000. 5. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is virtually certain that the company eventually will prevail in court, and that if It prevails, the Judgment will be $1,150,000. Classification Amount 2.

Answer 1

	Classification	Amount
1	Not accrued
2	Liability	$3300000
3	Liability	$6300000
4	Not accrued
5	Not accrued

1. According to U.S. GAAP, “probable” is equal to the likelihood of substantially more than “more likely than not”. Disclosure will be provided.

2. According to U.S. GAAP, the accrual of the low end of a range of equally likely outcomes should be recognized. Moreover, the disclosure note of the lawsuit will be provided

3. According to U.S. GAAP, the probable loss should be recognized.

4. It is a gain contingency. According U.S. GAAP, there is no accrual of gain contingencies. Rather disclosure note is provided for them.

5. It is a gain contingency. According U.S. GAAP, there is no accrual of gain contingencies. Rather disclosure note is provided for them.