Question

Hart Technology must accrue a loss contingency. The amount of the loss can be reasonably estimated within a range of outcomes. Of these outcomes, no single amount within the range is a better estimate than any other amount, but the attorneys have determined that the most probable amount to be paid by Hart Technology would be the minimum amount. What amount of loss accrual should Hart recognize

Answer 1

The amount of loss that should be recognized is the minimum amount of the range.

Recording a Contingent liability

• It should only be recorded if the loss is probable and the amount to be incurred as liability can be reasonably estimated.
• If neither of the above are possible, the loss would be recorded as a footnote.

US GAAP rules state however that if the loss is probable and the amount is in a range, the amount to be recorded as a contingent liability should be the minimum of the range.

In conclusion, they should recognize the minimum amount.

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