#45 2012 AICPA Newly Released Questions FAR help!!!!!!!

I today went through FAR part of the newly released AICPA questions.

Although I got 47/50 and it was nice to me, one question which seems simple has caught me.

#45!

45. CPAOn March 21, year 2, a company with a calendar year end issued its year 1 financial statements. On

February 28, year 2, the company’s only manufacturing plant was severely damaged by a storm and had

to be shut down. Total property losses were $10 million and determined to be material. The amount of

business disruption losses is unknown. How should the impact of the storm be reflected in the company’s

year 1 financial statements?

a. Provide no information related to the storm losses in the financial statements until losses and

expenses become fully known.

b. Accrue and disclose the property loss with no accrual or disclosure of the business disruption loss.

c. Do not accrue the property loss or the business disruption loss, but disclose them in the notes to the

financial statements.

d. Accrue and disclose the property loss and additional business disruption losses in the financial

statements.

Explanation

Choice “c” is correct.

I selected “b”….

I thought this was a question about recognized subsequent events and if my understanding is correct, events occurred during the period after the BS date but before FS is issued can be recognized on FS as long as past condition exists and that provides additional info…

I think the loss of the property can be recognized since past condition existed(the plant was there) and it occurred in the recognizable period.

Please help!!

My exam is on May 30!!!!!!