Smart Company provided the following information as of December 31, 2019: • Smart is the plaintiff in a lawsuit which would award damages normally set at the maximum of P1,000,000. Its legal counsel believes that is it probable that the action filed will be enforced by the court. • The entity is defending a lawsuit for patent infringement. The entity’s legal counsel believes that there is a 25% chance that the business will win the lawsuit. Damages payable ranges from P600,000 to P1,800,000. • On February 16, 2020, the local government is in the process of investigating an environmental violation committed by the entity last November. It is probable that the business will pay fees in relation to said violation and estimates the best amount at P1,000,000. • Smart is also involved in a lawsuit for a dispute with a customer. On December 31, 2019, the attorneys believe that it will remotely result to a favorable outcome. Expected damages would be 50% for P1,000,000, 20% for P3,000,000 and 30% for P10,000,000. • The entity is a defendant in a labor practice lawsuit which probably would result a payment of penalties. The amount cannot be reliably measured due to the uniqueness of the case. How much is the total contingency losses resulting to recognition of provisions? How many of the following information would only require disclosures to the notes to financial statements?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Smart Company provided the following information as of December 31, 2019:
• Smart is the plaintiff in a lawsuit which would award damages normally set at the maximum of P1,000,000. Its legal counsel believes that is it probable that the action filed will be enforced by the court.
• The entity is defending a lawsuit for patent infringement. The entity’s legal counsel believes that there is a 25% chance that the business will win the lawsuit. Damages payable ranges from P600,000 to P1,800,000.
• On February 16, 2020, the local government is in the process of investigating an environmental violation committed by the entity last November. It is probable that the business will pay fees in relation to said violation and estimates the best amount at P1,000,000.
• Smart is also involved in a lawsuit for a dispute with a customer. On December 31, 2019, the attorneys believe that it will remotely result to a favorable outcome. Expected damages would be 50% for P1,000,000, 20% for P3,000,000 and 30% for P10,000,000.
• The entity is a defendant in a labor practice lawsuit which probably would result a payment of penalties. The amount cannot be reliably measured due to the uniqueness of the case.

How much is the total contingency losses resulting to recognition of provisions?

How many of the following information would only require disclosures to the notes to financial statements?

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