What should be done with the transaction on August 2019? a. Disclose as provision since the occurrence is probable. b. Recognize as provision since it is probable that Buwis Buhay will lose the case. c. Disclose as contingent asset because even if it is probable that the company will be successful, contingent asset is never recognized unless realized. d. Recognize as contingent liability since it is probable that Buwis Buhay will be indebted. In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorneyassessed that it is probable that the company will win the case with P4,500,000 as the best estimateof the reward.In August 2019, Baguio City brought an action against the company for polluting the surroundingrivers with its waste products costing P5,000,000. It is probable that Baguio City will be successfulbut the amount of damages Buwis Buhay might have to pay is not to exceed P2,500,000.In December 2019, another litigation case amounting to P20,000,000 was filed against Buwis Buhayfor injuring pedestrians due to its renovation projects within the premise. This court case is seen tohave remote likelihood of occurrence because the evidences filed are not strong.

As per IFRS 37 A provision is present obligation from past event and it is probable that outflow of…

Answered: What should be done with the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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What should be done with the transaction on August 2019?

a. Disclose as provision since the occurrence is probable.

b. Recognize as provision since it is probable that Buwis Buhay will lose the case.

c. Disclose as contingent asset because even if it is probable that the company will be successful, contingent asset is never recognized unless realized.

d. Recognize as contingent liability since it is probable that Buwis Buhay will be indebted.

In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney
assessed that it is probable that the company will win the case with P4,500,000 as the best estimate
of the reward.
In August 2019, Baguio City brought an action against the company for polluting the surrounding
rivers with its waste products costing P5,000,000. It is probable that Baguio City will be successful
but the amount of damages Buwis Buhay might have to pay is not to exceed P2,500,000.
In December 2019, another litigation case amounting to P20,000,000 was filed against Buwis Buhay
for injuring pedestrians due to its renovation projects within the premise. This court case is seen to
have remote likelihood of occurrence because the evidences filed are not strong.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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