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Loss Contingency

 
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Loss Contingency
kamranACA
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#5
02-07-2009, 04:56 PM

Dear,

I must ask you to study IAS-8 (specially the paragraphs 32 to 40) to find detailed guideline as to how a change in accounting estimate has to be accounted for.

It's paragraph 36 and 37 are reproduced below for reference

QUOTE

36 The effect of a change in an accounting estimate, other than a change to which paragraph 37 applies, shall be recognized prospectively by including it in profit or loss in

(a) the period of the change, if the change affects that period only; or

(b) the period of the change and future periods, if the change affects both.

37 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognized by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.

UNQUOTE

When a previously recognised provision for loss contingency would be reversed, following accounting entry will be passed

......... Provision for loss contingency (liability account) DEBIT

......... Reversal of provision - Other operating income (P/L account) CREDIT

Therefore, the change in accounting estimate has been accounted for in profit and loss account (instead of directly in the retained earnings) and the corresponding effect has gone to the related liability account to such extent.

I hope this stands clarified.


Regards,


KAMRAN.
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Messages In This Thread
Loss Contingency - by GAZLIZ - 01-30-2009, 02:23 AM
[No subject] - by awaisaftab - 01-30-2009, 01:54 PM
[No subject] - by kamranACA - 01-30-2009, 05:37 PM
[No subject] - by awaisaftab - 02-07-2009, 02:40 PM
[No subject] - by kamranACA - 02-07-2009, 04:56 PM
[No subject] - by Uzair - 02-19-2009, 06:30 AM
[No subject] - by kamranACA - 02-19-2009, 03:18 PM
[No subject] - by Uzair - 02-19-2009, 06:20 PM

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