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Explain why each of the following is reported as a contingent liability but not recognised as a provision in the statement of financial position (balance sheet).

(a) Some leasehold properties which the group no longer requires have been sublet to third parties. If the third parties default, the group remains responsible for future rent payments. The maximum liability is £200,000.

(b) Group companies are defendants in the USA in a number of product liability cases related to tobacco products. In a number of these cases, the amounts of compensatory and puni- tive damages sought are significant.

(c) The Department of Trade and Industry has appointed Inspectors to investigate the com- pany's flotation ten years ago. The directors have been advised that it is possible that circumstances surrounding the flotation may give rise to claims against the company. At this stage it is not possible to quantify either the probability of success of such claims or of the amounts involved.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91697421

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