Gain And Loss Of Contingencies

Gain and Loss of Contingencies

According to FACB Accounting Standards Codification (n. d. ), ASC 450 “Contingencies” covers the three topics of gain contingencies, loss contingencies, and overall. Gain contingencies are claims for the reduction in a liability or rights to receive an asset. It is noted (450-30) that the codification provides “guidance for the recognition and disclosure of a gain contingency” ( FACB Accounting Standards Codification , n. d., p. 49) while stating that financial statements of a specific party should not include the contingencies that would result in again.

By doing so, one may be at risk of recognizing the financial gain from the contingency before its actual realization. Even though gain contingency is not recorded, it is important to mention that it is taken into account in the financial statements in cases when the probability of a beneficial outcome is relatively high or when the financial gain from the contingency can be estimated to a reasonable extent.

Loss of contingency (450-20) is the increase of liability or the reduction of an asset’s value that depends on the result of an event to occur in the future. The subtopic includes some examples of loss contingencies such as the threat of assets being expropriated, the risk of property damage due to hazards, the damage of sold products, etc. Contrary to gain contingencies, loss contingencies are included in the income statement and the balance sheet when the future loss can be estimated to a reasonable extent and when the future event is highly probable. Furthermore, the value of the loss contingencies is divided into three categories: remote, probable, and reasonably probable.

References

FACB Accounting Standards Codification . (n. d. ).

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