CASE STUDY A company car is in a wreck and the company expects to have to pay a

Question

CASE STUDY

A company car is in a wreck and the company expects to have to pay a substantial sum to persons who were injured.

State what type of disclosure, if any, is required under each of the following two circumstances (you can search the FARS database on the type of disclosure). For each circumstance, state your findings (citing the source) and then write a brief summary of what your findings mean. In both cases assume the company’s year-end is December 31.
a) The accident occurred in November
b) The accident occurred in January of the following year. Financial statements will not be issued until February.

Explanation / Answer

Part A

Since the accident ocured in November it is required to quantify the loss and make appropriate provision for the same in the financial statements. The same should also be disclosed in the financial statements as per IAS 37. However, if the company is not able to determine the amount to be paid as compensation than it should be treated as contigent liability and only be disclosed in the financial statments notes to accounts

Part B

Since the accident occured after year end, it should only be disclosed as per IAS 10 in the notes to the accounts

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