Asc Project

TO: Dr. Jack L. Winstead

FROM: Tin Bui

DATE: March 07, 2015

RE: ASC Project

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According to the case, at the end of 2007, management of M International had considered the loss contigency related the the standing litigation with W Inc. as probable. The estimated amount of the loss was from $15 million to $20 million which $17 million was the most likely. The accounting treatment for this issue is to record as least $17 million as a liability of loss contigency in financial statement for the year of 2007 with disclosure notes provided. The reason for this treatment is to qualify following cofifications: ASC 450 – 20 – 25 – 2, ASC 450 – 20 – 30 – 1, ASC 450 – 20 – 50 – 2 and ASC 450 – 20 – 50 – 4. Under ASC 450 – 20 – 25 – 2, a loss contigency must be accrued if it is considered to be “probable” and the amount of loss can be “reasonably estimated.” Since the loss related to this matter was “probable” and the amount of loss was “most likely” to be $17 million, the liability of loss contigency of $17 million or higher should be recorded. Under ASC 450 – 20 – 30 – 1, only the amount “to be a better estimate” shall be accrued, the amount of loss should be at least $17 million. Under ASC 450 – 20 – 50 – 2 and ASC 450 – 20 – 50 – 4, the disclosure note is required for the event related to ASC 450 – 20 – 25 – 2. The disclosure note should include “the nature of the contingency” as well as the range of the loss as “an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made.” If the company recorded $17 million as loss, the disclosure should specify that additional $3 million loss could be occured

According to the case, during 2009, M International had got unfavorable judgment that related to the $18.5 million of loss in litigation. Assume that $17 million of loss contigency relate to this event had been accured in prior perriod, the adjustment of $1.5...