FRA Financial Reporting

Introduction to financial statement

and other financial reporting topics

Case 2_3

Firm commitment

• The airlines also added partners in frequent flier programs , such as car rental companies and hotels.
• These partners handed out frequent-flier miles compensating the airlines in some manner for the miles distributed.
• Your frequent flyer miles reside in your account -- much like your dollars in the bank. They accumulate as you travel, although unfortunately they don't earn interest .
• At this time, most of the larger domestic airlines use a fairly uniform policy: mileage does not expire, but there must be some activity in your account once every three years.
• The airlines may change their mileage expiration policies, so you should read their most current guidelines.
• When the mileage total reaches a certain amount, you can "redeem" them for an award, usually air travel.

1-What is A contingent liability?

• A contingent liability is potential liability that depends on a future event a rising out of a past transaction, that may give rise to liabilities, but the timing and amount are not sure. example legal disputes environmental contamination product warranties ect. (firm specific risk)
• Two conditions have been established by the FASB for determining when a contingency should be entered in the accounting records:

1. liability must be probable.
2. liability must be reasonably estimated, such as vocation pay, income tax, and warranty liability.

Accounting policies

• principles, rules and procedures selected by the
• management of an organization in preparing and reporting the financial statement.
• Accounting policies deal specifically with matters such as:

1. consolidation of accounts
2. depreciation method
3. goodwill
4. research and development costs

• accounting policies must be disclosed in the annual financial statements Accounting for Contingent liabilities Contingent liabilities are accured in the accounting records.
• Potential liabilities that do not meet the two conditions are reported in the notes to the financial statements.
• Losses from potential liabilities are recorded when the conditions set the FASB are met.