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Contingencies and commitments

FAR Chapter 20 · Area III · Blueprint III.B

A lawsuit, a product warranty, a polluted site: each may cost the company money, but nobody yet knows whether or how much. The Blueprint asks you to recall when a contingency is recognized or disclosed, to calculate the amount, and to review supporting documents to decide what to record. The whole topic hangs on two questions asked in order. How likely is the loss? Can the amount be estimated?

In this chapter

1. Loss contingencies: the two questions
2. Measuring the amount
3. Disclosure, guarantees and unasserted claims
4. Gain contingencies
5. Warranties and premiums
6. Commitments
7. Reading the supporting documents

This chapter has 7 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Probable, reasonably possible and remote
• accrue or disclose
• measuring the amount
• reading supporting documents

Chapter 19: Accounting changes and error corrections · Chapter 21: Revenue recognition