University:
Widener University
Course:
COMPSCI 345 | Practice and Applications of Data Management
Academic year:

2023
Views:

453

Pages:

9
Author:

Jayden Mccall

Current Liabilities Obligations that must be discharged in a short period of time (generally less than one year) Examples: • Accounts payable • Short-term borrowings • Current portion of long-term debt (portion that requires the use of current assets) • Deposits • Warranties • Deferred Revenues / Income Contingencies Resolution of uncertainty Gain contingency Acquisition of asset Reduction of liability Loss contingency Loss or impairment of asset Incurrence of liability Accounting Guidelines on Contingencies The accounting treatment of a contingency depends on (1) whether the contingency is: Probable - the future event is likely to occur Reasonably possible - the chance of occurrence of the future event (or events) is more than remote but less than likely Remote - the chance of occurrence of the future event (or events) is slight (2) whether the amount of the gain or loss must be reasonably estimated. Loss Contingencies Measurable Probable Accrue Disclose in notes Reasonably possible Disclose in notes Remote Not Measurable Disclose in notes None required, but note permitted Accrual of loss contingency: A = L + Accrued liability E Loss on Contingency Gain Contingencies Probable Measurable Accrue in unusual circumstances, else disclose Not Measurable Disclose, but avoid misleading inferences Reasonably possible Disclose but avoid misleading inferences Remote Disclosure is not recommended Disclosure: An Example Archer Daniels Midland Company, 2003 Annual Report. For this quote, see "Note 12 - Antitrust Investigation and Related Litigation" on pp. 41 of the Archer Daniels Midland Company's 2002 Annual Report, available at their web site, http://www.admworld.com. Sarbanes-Oxley Act of 2002 • Act is intended to (1) improve disclosure (2) increase quality of audits (3) increase effectiveness of corporate governance With regard to contingencies, Sarbanes-Oxley requires companies to provide information on expected payouts including amounts and timing in the MD&A section of the financial statements. Present Value Concepts Annuities Ordinary Annuity (annuity in arrears) - payments occur at the end of the period Annuity due (annuity in advance) - payments occur at the beginning of the period What is the FV of a $100 ordinary annuity at the end of 3 years at 8%? 0 1 2 3 |---------------------------|---------------------------|----------------------------| A general formula: FV(a) = {[(1+r)^N - 1]*[1/r]}*Fixed Period Cash Flow Present Value Concepts What is the PV of a 3 year $100 ordinary annuity at 8%? 0 1 2 3 |---------------------------|---------------------------|----------------------------| A General Formula: PV(a) = {[1 - (1+r)^(-N)]*[1/r]}* Fixed Period Cash Flow Note: A perpetuity is an annuity that goes on forever. As N approaches infinity, the formula for PV(a) becomes [1/r]*Fixed Period Cash Flow. If you were to receive $100 a year forever, the PV of that stream of payments, given r = 8%, is 100/.08 = 1,250. If you were to receive $100 a year for 50 years, the PV of that stream of payments, given r = 8%, is 1,223.35. Why is the difference so small?