A company car is in a wreck and the company expects to have to pay a substantial

Question

A company car is in a wreck and the company expects to have to pay a substantial sum to persons who were injured. State what type of disclosure, if any, is required under each of the following two circumstances (you can search the FARS database on the type of disclosure). For each circumstance, state your findings (citing the source) and then write a brief summary of what your findings mean. In both cases assume the company’s year-end is December 31.

a) The accident occurred in November

b) The accident occurred in January of the following year. Financial statements will not be issued until February.

Post should be 1 page long.(Note: post somehing new not a post already posted)

Explanation / Answer

Answer to Question a)

Since the year ending is 31st December and the the accident happened in the month of November, therefore the company is required to quantify the loss (amount to be paid) and has to make appropriate provision for the same in its books for the year ending 31st December such that all the transactions/events occurred until 31st December are recorded in the books and the financials of the company shows a true and fair view as at 31st December.

Answer to Question b)

Since the accident happened in January of the following year, but the financial statements have not been issues until February. So this means there is a subsequent event which happened after the reporting period but before the financials statement are actually issues. This amounts to the information which is known at the time before the financial statements are released and hence the probable amount that needs to be paid for this accident should be shown in the finanicial statement by way of a separate note under the note heading "Subsequent Events".

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