Current Liabilities, Contingencies & Commitments

Loss contingencies

Likelihood	Action
Probable + estimable	Accrue + disclose
Probable, not estimable	Disclose
Reasonably possible	Disclose
Remote	Nothing (disclose guarantees)

• Range with no best estimate → accrue the minimum (International Financial Reporting Standards (IFRS): midpoint).
• Unasserted claim → disclose if assertion probable and loss reasonably possible.
• Gain contingencies → never accrue.

Other liabilities

• Compensated absences: services rendered + vest or accumulate + probable + estimable.
• Assurance warranty → accrue cost; service warranty → deferred revenue.
• Gift cards: breakage in proportion to redemptions.
• Guarantees: liability for the stand-ready obligation at fair value.
• Asset retirement obligation: present value, capitalized into the asset; accretion expense is operating.

Formulas

Ending warranty liability = beginning + expense − claims paid.

Exam traps

• A loss whose cause arose after the balance sheet date is disclosed, not accrued — even if it is probable and estimable before the statements are issued.
• Sick pay that accumulates but doesn't vest may be accrued, but accrual is not required.
• Warranty expense (accrual method) belongs in the year of the sale, not the year claims are paid.