Essay about Cola Wars HBR

1612 Words Jan 16th, 2014 7 Pages
Five-Step Approach to Unstructured Problems

1. Succinct Statement of the Financial Reporting Issue(s)

When has a company completed its side of an arrangement, allowing it to record a sale and related loss contingencies (recall product costs), while still conforming to GAAP?

2. Brief Summary of the Economic Purpose of the Transaction

To better match revenues and expenses, Frequent Fixer has proposed recognizing all of its recall product costs at the time of sale to match its competitors. Currently, Frequent Fixer only recognizes “small campaigns” (projected product recall costs of less than $100,000) at the time of sale and delays recognizing “major campaigns” until occurrence.

3. List of Alternative Ways to Report
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At the time of sale, Frequent Fixer will disclose in their footnotes a reasonable estimate of the amount they expect to pay as “disclosure is preferable to accrual” with loss contingencies.

For ASC 980-405-25-1 conditions are met since the costs will be “recognized as liabilities [and] taken to income […] when the associated costs are incurred”.

Alternative C
ASC 450-20-25-2, for small campaigns Condition A is met as it is “probable that one or more future events will occur confirming the fact of the loss” as these recall losses appear to be an industry norm and a recurring element. The delayed recognition of major campaigns meets Condition A as the recognition will be delayed until the period of occurrence when a liability will be “incurred” with losses related to the “current period”.

For ASC 450-20-25-2 Condition B, small campaigns appear to be met as they are small in dollar size (refer to Alternative A Condition B for discussion on small campaigns). The major campaigns appear to be met (refer to Alternative B Condition B).

ASC 980-405-25-1, this condition is not met for small campaigns (refer to Alternative A related explanation). However, for major campaigns the condition is met (refer to Alternative B related explanation).

Alternative D
ASC 460-10-25-6, the excerpt indicates that Condition A in ASC 450-20-25-2 is met since Frequent Fixer identified at the date of its

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