Question: On February 1, 2018, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2018 (When the December 31, 2017, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company is considered at fault, Viking Manufacturing will have to cover the damages from its own resources.InstructionsDiscuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2017.

Step by step solution

01

Meaning of financial statements

Financial statements are records in writing that carry the activities of the entities as well as the financial performance of a firm.

02

Accounting treatment and disclosures that should be accorded the casualties and related contingent losses  

As per the information provided, it is an instance of loss contingency with possibility of loss. Due to the explosion of storage tank and damage occurred to buildings and homes within a mile radius of the explosion and various people were also affected. Every firm should list a loss and a liability in the financial statements as per the accounting principle associated with loss contingency with possibility of loss, the reason for litigations must have taken place on or earlier of the date of accounting statements.

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