[jicheng]

I know the The settlement of litigation for an amount different from the liability recorded in the accounts would require adjustment of the financial statements if the events occurred before B/S date. How if a loss is recognized for the litigation and subsequently wins, and got a gain. Shall I recognize the gain on B/S date? As I know the gain should not be recognized on the view of contingency matter.

Anyone has an idea?

[Anonymous]

Bump..I would like to know your thoughts on this as well guys.

[marqzho]

IMO

We should recognized the gain in the F/S. Here is why:
1. This is no longer a contingency. Gain contingency means it is probable that such gains will be realized. In this case, the gain is no longer probable.
2. It is a recognized subsequent events since it provides evidence about conditions existed at the balance sheet date.

REG 90
FAR 95
AUD 98
BEC 84

[FIFOisbetterthanLIFO]

Use those technical research tools! It's good practice for the exams, and for real life when your boss comes to you for technical accounting research. 🙂

Audit Standards (AU) 560

Subsequent Events

.03 The first type consists of those events that provide additional evidence
with respect to conditions that existed at the date of the balance sheet and
affect the estimates inherent in the process of preparing financial statements.
All information that becomes available prior to the issuance of the financial
statements should be used by management in its evaluation of the conditions
on which the estimates were based. The financial statements should be adjusted
for any changes in estimates resulting from the use of such evidence.

.07 Subsequent events affecting the realization of assets such as receivables
and inventories or the settlement of estimated liabilities ordinarily will
require adjustment of the financial statements (see paragraph .03) because such
events typically represent the culmination of conditions that existed over a relatively
long period of time. Subsequent events such as changes in the quoted
market prices of securities ordinarily should not result in adjustment of the
financial statements (see paragraph .05) because such changes typically reflect
a concurrent evaluation of new conditions.

So yes to answer your question, you would recognize a gain if you were sure that you would be paid a certain amount. I have seen this before and auditors require proof of the documentation in order to book the gain.

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[Author]

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