Page 20 - CIMA May 18 - MCS Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

Similarly, those suffering loss, damage or injury as a result of the accident may have a claim
against Menta if Menta was established as having responsibility for causing the accident. The
owners of other vehicles damaged in the accident would be able to claim for loss or damage
suffered by their vehicles in the accident.

Persons suffering injury as a consequence of the accident will also be able to claim compensation
for injury and other loss suffered. The children injured in the accident would have a right to claim
compensation for injury suffered.

In terms of reliable measurement, insurance companies and loss assessors should be able to
quantify the cost of vehicle repairs with some degree of reliability based upon their experience
and expertise. Similarly, quantification of the compensation for injury suffered should be
quantifiable based upon communication with lawyers and insurers who will have experience and
expertise of other similar situations and claims.

Each claim should be considered on its individual merits and a provision made for each, as
appropriate. The provision should be the minimum unavoidable amount required to settle a claim
and should be discounted to its present value if the time value of money is a relevant factor. The
carrying amount of a provision should be reviewed annually and adjusted as necessary until it is
either settled or it is established that it is no longer probable that there will be a future outflow of
economic benefits.

If it is established that there are any uninsured losses that Menta is liable for, provision should be
made by Menta for such losses.

If Menta makes any claims against its insurance policies to cover losses suffered by third parties or
itself, the extent of any insurance pay‐out would be regarded as a contingent asset. A contingent
asset is a possible asset that arises from a past event, and whose existence will only be confirmed
by the occurrence of one or more events outside of the control of the entity.

A contingent asset should only be recognised in the financial statements if it is virtually certain
that there will be a future inflow of economic benefits. For example, Menta may receive
confirmation from its insurers regarding the timing and amount(s) that it will be paid by the
insurer in settlement of the claim. This may include any payments made directly to third parties in
settlement of their claims, which would otherwise need to be settled by Menta.

A contingent liability is a possible liability that arises from a past event, and whose existence will
only be confirmed by the occurrence of one or more events outside of the control of the entity.
An example of a contingent liability is a claim made against Menta for compensation which Menta
is contesting.

A contingent liability should be recognised in the financial statements if it is either virtually certain
or probable that it will result in a future outflow of economic benefits. If it is regarded as only
possible, the contingent liability should be disclosed in the financial statements, or ignored
completely if it is regarded as remote.

Financial Manager

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