Problem 4-1

1 In the first lawsuit, since 51% is probable, the entity has loss on the lawsuit and they would recognise a lawsuit liability an
2 In the second lawsuit, the entity estimates the midpoint of the liability which is P4,000,000 (5,000,000 + 3,000,000 / 2) to
3 In the third lawsuit, the entity presumed the time value of money, therefore as the entity estimates its midpoint range the
4 In the fourth lawsuit, the entity woud not recognize an accrual, since 25% is considered as possible, then a disclosure note
gnise a lawsuit liability and recognize a loss of P1,000,000.
0,000 + 3,000,000 / 2) to be recognize as loss and will accrue liability.
ates its midpoint range they would recognize a loss and accrue its liability of P2,000,000 (1,500,000+2,500,00/2)
ble, then a disclosure note can be suited.
Problem 4-5

The entity should recognize a provision, since the claim of the international freight forwarding company is probable
In the case of the P2,000,000 claim of the international freight forwarding company there would be no recognition
Therefore, the entity shall recognized a contingent asset of P4,500,000 (5,000,000 x 90%) since the amout is collecti
rwarding company is probable the entity the entity shall recognized P5,000,000.
here would be no recognition of provision needed because the entity has a remote possibility for the payment.
0%) since the amout is collectible.
 Problem 4-9

On March 1 , 2021 there is no disclosure required because the City government has not proposed a deficiency assessment wh
The lawsuit against Faye Company resulted an unrealized gain which is not accrued even though the gain is probable and it ca

Litigation loss
Litigation liability
To record the loss contingency since the loss is probable.
2,000,000
The loss on contingency a disclosure note is suited. 2,000,000
osed a deficiency assessment which is not probable.
ugh the gain is probable and it can only be recognized when it is realized.
 Problem 4-12
2020
Jan 1 Detoxification facility 9,000,000
Cash 9,000,000

1 Detoxification facility 840,000

Decommissioning liability 840,000
(1,500,000 x .56)

Dec 31 Depreciation 984,000

Accumulated Depreciation 984,000
(9,840,000/10)

31 Interest Expense 50,400

Decommissioning liability 50,400
(840,000x6%)
2022
Jan 1 Detoxification facility 126,000
Decommissioning liability 126,000
(200,000 x.63)

Dec 31 Original Cost 984,000

Additional cost (126,000 / 8) 15,750
Total Depreciation 999,750

Depreciation 999,750
Accumulated Depreciation 999,750

Dec 31 Original liability 840,000

Interest for 2020 (840,000 x 6%) 50,400
Carrying Amount 12/31/2020 890,400
Interest for 2021 (890,400 x 6%) 53,424
Carrying Amount 12/31/2021 943,824

Interest for 2020 (943,824 x 6%) 56, 629

Interest for 2022 on additional liability
(126,000 x 6%) 7,560
Total Interest for 2020 64, 189

Interest Expense 64,189

Decommissioning liability 64,189

2029
Dec 31 Purchase Price 9,000,000
Original Decommissioning cost 840,000
 Additional Decommissioning Cost 126,000
Total cost 9,966,000

Accumulated Depreciation 9,966,000

Detoxification facility 9,966,000

Dec 31 Decommissioning liability 1,700,000

Loss on settlement of decommissioning liability 300,000
Cash 2,000,000
 Problem 4-13

Normal defect
(500 cars x P10,000 x 25%) 1,250,000
Significant Defect
(500 cars x P10,000 x 15%) 2,250,000
Expected Value 3,500,000 A.
 Problem 4-16

1 Weighted probabilities
2,000,000 x 60% x 80 % 960,000
1,000,000 x 40% x 80% 320,000
Weighted cashflows 1,280,000
Risk adjustment factor (1,280,000 x 8%) 102,400
Adjusted cashflows 1,382,400 A.

2 Present Value of Cash flows 12/31/ 2020

(1,382,400 x .89) 1,230,336 C.
 Problem 4-21

Accrued Liability is the Best Estimate 500,000 C.

Problems 4-24
B. A loss contingency of P 3,600,000 and disclose an additional contingency of up to P2,400,000.

Problem 4-27
D. 0
Contingent assets are not recognized as income because it may never realized however, it can only be disclosed wh
 P2,400,000.

wever, it can only be disclosed when the cash inflow is probable.