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Presented below is a note disclosure for Matsui Corporation.

Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those relating to hazardous wastes, including certain sites which are on the United States EPA National Priorities List (鈥淪uperfund鈥�). These actions seek clean-up costs, penalties and/or damages for personal injury or to property or natural resources.

In 2017, the Company recorded a pre-tax charge of \(56,229,000, included in the 鈥淥ther expense (income)鈥攏et鈥� caption of the Company鈥檚 consolidated income statements, as an additional provision for environmental matters. These expenditures are expected to take place over the next several years and are indicative of the Company鈥檚 commitment to improve and maintain the environment in which it operates. At December 31, 2017, environmental accruals amounted to \)69,931,000, of which $61,535,000 are considered noncurrent and are included in the 鈥淒eferred credits and other liabilities鈥� caption of the Company鈥檚 consolidated balance sheets.

While it is impossible at this time to determine with certainty the ultimate outcome of environmental matters, it is management鈥檚 opinion, based in part on the advice of independent counsel (after taking into account accruals and insurance coverage applicable to such actions) that when the costs are finally determined they will not have a material adverse effect on the financial position of the Company.

Instructions

Answer the following questions.

1. What conditions must exist before a loss contingency can be recorded in the accounts?
2. Suppose that Matsui Corporation could not reasonably estimate the amount of the loss, although it could establish with a high degree of probability the minimum and maximum loss possible. How should this information be reported in the financial statements?
3. If the amount of the loss is uncertain, how would the loss contingency be reported in the financial statements?

Step by step solution

01

Meaning of Disclosure

A disclosure is supplemental data that are included with a company's financial explanations and often serves to clarify activities that significantly influenced the company's financial results.

02

(a) Explain the conditions before a loss contingency can be recorded in the accounts.

Before a loss contingency is recorded, two requirements must be met:

1. A liability has likely been incurred at the date of the financial statements, according to information accessible before the release of the financial statements.
2. It is possible to assess the lossamount.

03

(b) Reporting of information on financial statement

Amounts within the range are acquired when one within the range appears to be a better estimate at the moment than any other within the range. The money amount at the low end of the range is accrued, and the dollar amount at the high end is revealed when no value within the range is a better estimate than any other amount.

04

(c) Explaining how would the loss contingency be reported in the financial statements

The following information in the notes is necessary if the loss's magnitude is unknown:

1. The type of contingency.

2. A declaration that an estimate cannot be made, a range of potential losses, or an estimate of those losses

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