Post Graduate
| Alex University Faculty of Commerce English EMBA Program Cohort 5 | |
Case Analysis: Kim Park (B): Liabilities
By: Khaled M. Motawie
Introduction
As part of her plan to explore interesting accounting questions with her study group, Kim Park prepared a set of short case studies dealing with the recognition and measurement of liabilities. Kim knew from her earlier study group discussions that her fellow students expected her to prepare tentative answers to the questions she would raise in the meeting. In addition, the study group had encouraged her to illustrate her tentative answers with numerical illustrations using case data.
Prior Knowledge
Kim understood from the background readings assigned for her accounting course that Generally
Accepted Accounting Principles (GAAP) defined liabilities as
“Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.”
Kim also knew under International Financial Reporting Standards (IFRS) that liabilities were recognized on the balance sheet when
“It is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.”
Further, Kim understood from her readings that there was a special set of accounting rules covering contingent liability recognition and disclosure. Under GAAP, a contingency is an existing condition involving uncertainty as to possible gain or loss. When a contingency loss exists, it should be accrued as a liability when both of the following conditions are met:
❶ At the date of the financial statements it is probable that an asset has been impaired or a
Case Analysis: Kim Park (B): Liabilities
By: Khaled M. Motawie
Introduction
As part of her plan to explore interesting accounting questions with her study group, Kim Park prepared a set of short case studies dealing with the recognition and measurement of liabilities. Kim knew from her earlier study group discussions that her fellow students expected her to prepare tentative answers to the questions she would raise in the meeting. In addition, the study group had encouraged her to illustrate her tentative answers with numerical illustrations using case data.
Prior Knowledge
Kim understood from the background readings assigned for her accounting course that Generally
Accepted Accounting Principles (GAAP) defined liabilities as
“Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.”
Kim also knew under International Financial Reporting Standards (IFRS) that liabilities were recognized on the balance sheet when
“It is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.”
Further, Kim understood from her readings that there was a special set of accounting rules covering contingent liability recognition and disclosure. Under GAAP, a contingency is an existing condition involving uncertainty as to possible gain or loss. When a contingency loss exists, it should be accrued as a liability when both of the following conditions are met:
❶ At the date of the financial statements it is probable that an asset has been impaired or a