Question

Falling Boxes On January 31, an improperly stacked box fell from the top shelf of a...

Falling Boxes On January 31, an improperly stacked box fell from the top shelf of a warehouse, injuring an employee. The employee was hit, fell, and broke his wrist. Your company self-insures for the risk of such incidents rather than paying an insurance company to absorb the risk of such claims. The employee has been treated for his injuries and has retained a lawyer. The lawyer has not yet filed a formal claim with the company. According to your internal risk management team, the amount of claim likely to be sought by the employee could range between $50,000 and $300,000. Is your company required to record a liability for this incident? When, and for what amount? What dis-closures are required, if any?

Homework Answers

Answer #1

1. The company is not requied to record a liability in accounts as the laywer has not yet filed a formal claim with the company.

2. When claim received from the lawyer and the company is not contesting in the court, the claim amount may be treated as liability and account for in the books of the company.

3. If claim submitted by the lawyer is contested by the company in the court, the claim amount be treated as "contingent Liability" and shown as foot note to Financial Accounts at the end of Accounting Year.

Please come back if any clarification required.

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