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Economic Consequences and Loss Contingency

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If you should look at FAS No. 142: Goodwill and Other Intangible Assets, represents a significant expansion of business valuation into the financial reporting framework. It is currently implemented in conjunction with FAS No. 141: Business Combinations. Finance and accounting professionals in reporting and non-reporting companies that adopt SFAF No. 142 must understand many of the principles, methods, and techniques of business valuation.

REQUIRED:
(1) What are the points of examination of how the economic consequences have influenced the shaping of SFAS No. 141 and 142.
(2) What are the points of examination of how the two basic requirements for accrual of a loss contingency relate to the concepts of periodicity, measurement, objectivity, and relevance hide problem

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Financial/Accounting

If you should look at FAS No. 142: Goodwill and Other Intangible Assets, represents a significant expansion of business valuation into the financial reporting framework. It is currently implemented in conjunction with FAS No. 141: Business Combinations. Finance and accounting professionals in reporting and non-reporting companies that adopt SFAF No. 142 must understand many of the principles, methods, and techniques of business valuation.

(1). What are the points of examination of how the economic consequences have influenced the shaping of SFAS No. 141 and 142.

Economic consequences have influenced the shaping of SFAS No. 141 and 142 in several ways, particularly for merger and acquisitions. With the release of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, the FASB attempted to improve the transparency of accounting and reporting of business combinations. According to CPEasy, "Under SFAS 141, all business entities or combinations must now be accounted for using the purchase method, based on the values of the assets exchanged. Under SFAS 142, goodwill and indefinite-lived intangibles are no longer amortized. Additionally, ...

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This solution discusses economic consequences and requirements for loss contingency.

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Ethical Dilemma: Camp Industries

You are Chief Financial Officer of Camp Industries. Camp is the defendant in a $44 million class action suit. The company's legal counsel informally advises you that chances are remote that the company will emerge victorious in the lawsuit. Counsel feels the company will probably lose $30 million. You recall that a loss contingency should be accrued if a loss is probable and the amount can reasonably be estimated. A colleague points out that, in practice, accrual of a loss contingency for unsettled litigation is rare. After all, disclosure that management feels it is probable that the company will lose a specified dollar amount would be welcome ammunition for the opposing legal counsel. He suggests that a loss not be recorded until after the ultimate settlement has been reached.

Analyze the ethical dilemma and provide a recommendation as follows:

Determine the facts of the situation.
Identify the ethical dilemma and all possible stakeholders.
Identify all the values related to the situation and explain how each of the values is impacted.
Describe the alternative courses of action.
Evaluate the courses of action specified in step 4 in terms of their consistency with the values identified in step 3.
Identify the consequences of each possible course of action.
Recommendation

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