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ACCO320Midterm SOL Win 2011NP

ACCO320Midterm SOL Win 2011NP - Question I Current...

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Question I - Current Liabilities (38 MARKS) A) Contingencies (18 Marks) (1i) Payroll Expenses 408,600 Payroll Costs Payable 408,600 [ Wages, Salaries and other similar terms are acceptable ] (1ii) Even though QAP’s plant is uninsurable due to high risk and possibly sustained repeated losses in the past, as of the balance sheet date no assets have been impaired or liabilities incurred nor is an amount reasonably estimable.* Therefore, this situation does not satisfy the criteria for recognition of a loss contingency.* Hence no JE would be required. ** (1iii) It is likely a loss and liability have been incurred and a reasonable estimate can be made of the amount. The loss and liability should be recorded as follows: Loss From Accident 200,000 Liability For Accident 200,000 (2i) Under Private Enterprise GAAP , the payroll Expenses would be accounted for in the Income Summary* while the Payroll Costs payable would be reported in the Balance Sheet* as Current Liabilities .* (2ii) Unless a casualty has occurred or there is some other evidence to indicate impairment of an asset prior to the issuance of the financial statements, there is no disclosure required relative to a loss contingency .* The absence of insurance does not of itself result in the impairment of assets or the incurrence of liabilities. Expected future injuries to others or damage to the property of others, even if the amount is reasonably estimable, does not require recording a loss or a liability.** The cause for loss or litigation or claim must have occurred on or prior to the balance sheet date and the amount of the loss must be reasonably estimable in order for a loss contingency to be recorded.** Disclosure is required when one or both of the criteria for a loss contingency are not satisfied and there is a reasonable possibility that a liability may have been incurred or an asset impaired, or, it is probable that a claim will be asserted and there is a reasonable possibility of an unfavourable outcome.**
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(2iii) PE GAAP requires that, when some amount within a likely range appears at the time to be a better estimate than any other amount within that range, that amount be accrued.
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ACCO320Midterm SOL Win 2011NP - Question I Current...

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