State one contingent liability that Samsung has. Under what conditions and event

Question

State one contingent liability that Samsung has. Under what conditions and events will this contingent liability be recorded as a liability? (Do not use Warranty as the answer for this part.

18. Provisions Changes in provisions for the year ended December 31, 2016, are as follows: Royalty Warranty (A)expenses (B)incentives (C) Long-term (In millions of Korean won) Other(D, E) Total Balance as at January 1 Charged (credited) to the W 1,664,526W 4,443,749 W 753,553 W 81,153W 6,942,981 statement of income Payment Other Balance as at December 31 1,532,609 2,854,913 (220,402)(231,577)(4,438,327) (404,024) W 1,747,857 W 1,588,037 W 716,252 W 903,397 W 4,955,543 2,176,443(1,047,548) (2,087,361) (1,898,987) 90,823 193,409 (5,751) (10,308) (478,788) Other includes effects of changes in foreign currency exchange rates and reclassification as assets held-for sale (A) The Group accrues warranty reserves for estimated costs of future service, repairs and recalls, based on historical experience and terms of warranty programs (B) The Group recognizes provisions for the estimated royalty expenses that are under negotiation with counterparties. The timing and the amount of payment depend on the settlement of the negotiations (C) The Group has a long-term incentive plan for its executives based on a three-year management performance criteria and recognizes a provision for the estimated incentive cost for the accrued period. (D) The Group records provisions for the estimated expenses occurring from discontinuing production and sale of products 62

Explanation / Answer

Principle:

As per AS 29 Provisions, Contingent Liabilities and Contingent Assets, Contingent liability is defined as a possible obligation that arises from past events and the existence of which will be confirmed only by the occurence or nonoccurence of one or more uncertain future events not wholly within the control of the enterprise.

Here one of the examples of Contingent Liability that Samsung has --- Warranty Reserves

because as it is probable that the company inccurred warranty expenses and the warranty expenses can reasonably estimated (based on historical information),a contongent liability related to warranty expenses should be recorded in the financial staements.

A contingent liabilty is recorded in the accounting records if the contingency is probable and amount of liability can be reasonably estimated. f both the conditions are not met then contingent liability may be reported as footnotes in the financial statements or not reported atall.

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