Chapter 13, Problem 1JC

1.

To determine

Whether the company should accrue, disclose or not report at all the contingency in the financial statement dated on 31^st December, 2014.

Given information:

The company named Generics Inc. has gone through a case in which Pharma Inc. sued for patent infringement. As on December 31^st, 2014, the case was in the early stage and the company believed that they are likely to win. By the end of year 2015, the case progressed and potential liability was estimated between $1 million to $3 million. By 31^st march, 2016 the company realized that they are going to lose the case while the loss estimated at that time was $4 million.

2.

To determine

The way in which the contingency should be reported as on December 31^st, 2015.

3.

To determine

The way in which the contingency should be reported as on December 31^st  2016.