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Contingent liability: A form of disclosures that should be taken and the period of years that would be disclosed

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Added on  2020-03-16

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Financial Accounting 2 FINANCIAL ACCOUNTING By Name Course Title Instructor’s name Name of Institution Name of Department Financial Accounting Question 1: Factors that could be considered in determining the form the disclosures that should be taken and the period of years the disclosures would be made Contingent liability: This is a form of commitment that depends on the occurrence of the future events which may either happen or not.

Contingent liability: A form of disclosures that should be taken and the period of years that would be disclosed

   Added on 2020-03-16

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Financial Accounting 1FINANCIAL ACCOUNTING By NameCourse TitleInstructor’s nameName of InstitutionName of Department
Contingent liability: A form of disclosures that should be taken and the period of years that would be disclosed_1
Financial Accounting 2Financial AccountingQuestion 1: Factors that could be considered in determining the form the disclosures that should betaken and the period of years the disclosures would be madeContingent liability: This is a form of commitment that depends on the occurrence of the future events which may either happen or not. If a contingent liability that is considered to be both probable and the amount can be estimated with reasonable certainty is basically to be recorded as a loss or expense in the income statement and also as a liability in the company balance sheet (Annan, 2014). It can be noted that if a contingent that is probable but the amount cannot be recorded in the financial accounts, but will be disclosed in the notes to the financial statements. Furthermore, a contingent liability that is very remote that may happen in future need not to be recorded as well as disclosed in the notes section of the financial statements. In this particular case, the factor that needs to be considered is that CBA has settled with the investors for A$50 Million and agreed to pay A$1.5 Million. Therefore, the settlement has occurred that is not contingent (Buchman, Harris, and Liu, 2016). The entry for payment for A$50 Million must be demonstrated as an expense in the income statement for the company. The nature and details of this particular transaction should also be given in the notes for the readers to have a better understanding of the item. Provision must be made in the account for A$1.5 Million which is an amount not paid but agreed upon, and the obligation must be made in the statement of financial position. The details of this particular transaction must be provided in the notes sections for easy understanding (El-Gazzar, Lilien, and Pastena, 2008). The accounting treatment as above andsuch disclosures must be included in the financial statement for the FY2012 which is considered to be the year of the transaction. Since this item is considered to be significant and
Contingent liability: A form of disclosures that should be taken and the period of years that would be disclosed_2
Financial Accounting 3repetitive, complete disclosures must be made in the director's report and the action plan that would be implemented in future so as to ensure that such incidents do not repeat itself. Question 2i.PV of period rental costs = Yearly rental income * PVIFA (n=4, i=8%)$50,000 * 3.5771178855PV of the guaranteed residual = Guaranteed residual * PVIF (n=4, i=8%)$40,000 * 0.7350$29,400 Lease obligation = PV of period rental costs + PV of the guaranteed residualLease Liability = $178,855 + $29,400Lease liability = $208,255ii.Lease Amortization TableDateLease paymentInterest paymentReduction in obligationLease obligation1/7/2019208,2551/7/201950,00050,000158,2551/7/202050,00012660.437,340120,9151/7/202150,0009673.23240,32780,5891/7/202250,0006447.090643,55337,0361/7/202340,0002962.857837,037-1Lease expense on 1/7/2023 is the guaranteed residualiii.DateJournal EntriesDr.Cr.1/7/2019Lease studio208,255 Lease Obligation50,000Leased Studio50,000 Cash208,25530/6/2020Interest payment12,660 Interest Payable12,660Depreciation payment rented studio42,060 Acc. Depreciation rented studio(208255 - 40,000)/442,060
Contingent liability: A form of disclosures that should be taken and the period of years that would be disclosed_3

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