Current Liabilities ! Obligations that must be discharged in a short period of time (generally less than one year) ! Examples: <Accounts payable <Short-term borrowings <Current portion of long-term debt (portion that requires the use of current assets) <Deposits <Warranties <Deferred Revenues / Income 15.514 2003 Session 13 1Contingencies Resolution of uncertainty Gain contingency Loss contingency Acquisition of asset Loss or impairment of asset Reduction of liability Incurrence of liability 15.514 2003 Session 13 2Accounting guidelines on contingencies The accounting treatment of a contingency depends on whether the contingency is: Probable - the future event is likely to occur Reasonably possible - the chance of occurrence of the future event (or events) is more than remote but less than likely Remote - the chance of occurrence of the future event (or events) is slight In addition, the amount of the gain or loss must be reasonably estimated. 15.514 2003 Session 13 3Loss Contingencies Measurable Not Measurable Probable Accrue Disclose in notes Reasonably possible Disclose in notes Disclose in notes Remote None required, but note permitted Accrual of loss contingency: A = L + E Accrued liability Loss on Contingency 15.514 2003 Session 13 4Gain contingencies Measurable Not Measurable Probable Accrue in unusual Disclose, but avoid circumstances, else disclose misleading inferences Reasonably possible Disclose but avoid misleading inferences Remote Disclosure is not recommended 15.514 2003 Session 13 5Disclosure: An Example Archer Daniels Midland Company, 2002 Annual Report For this quote, see "Note 12 - Antitrust Investigation and Related Litigation"on pp. 41 of the Archer Daniels Midland Company's 2002 Annual Report, available at their web site, http://www.admworld.com.15.514 2003 Session 13