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rsm220 case draft


Department
Rotman Commerce
Course Code
RSM220H1
Professor
Dragon Stojanovic

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ISSUE #2: Fees/duties imposed by U.S. Government
Alternative 1: Disclose it as Contingent Liability
According to IAS 37-10, a contingent liability is: “A possible obligation that arises
from past events and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control
of the entity”.
According to, IAS37-28, “An entity shall not recognize a contingent liability”.
Based on these guidelines, we could treat these fees as a contingent liability because their existence will
be confirmed by uncertain future events. Hence, the $4million will be stated on the balance sheet as cash
equivalent.
This treatment will not lead to an increase in liability; however, the money put aside will be taken as cash
equivalent and will result in increased liquidity position.
Alternative 2: Treat the money put aside as restricted cash
According to IAS7-48, “An entity shall disclose, together with a commentary by
management, the amount of significant cash and cash equivalent balances held by
the entity that are not available for use by the group.
This clause suggests that the money put aside should be treated and disclosed as
“restricted cash” which will show up as a long term asset of on the balance sheet.
This treatment will lead to lower values of liquidity, as liquidity deals with current
assets only.
Conclusion:
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