Using the information from P13- 5, assume that Exwella Pharmaceuticals, Inc., reports under IFRS.
In P13-5
1. Product liability lawsuit related to Nowaya, a pharmaceutical drug, in which claimants seek substantial damages. Exwella’s attorneys assess the likelihood of losing the lawsuit as reasonably possible at 60%. At the beginning of the year, the estimated loss ranged from $ 500,000 to $ 1,500,000. At the end of the year, the attorney’s assessment of the loss increased to a range between $ 750,000 and $ 2,000,000.
2. A personal injury lawsuit in which a claimant seeks substantial damages. Exwella’s attorneys assess the likelihood of losing the lawsuit as probable at 95%. At the beginning of the year, Exwella reported a contingent liability of $ 750,000 for the lawsuit. At the end of the year, the attorney’s assessment of the loss increased to a range between $ 900,000 and $ 3,000,000. NewPending Lawsuits.
3. A new product liability lawsuit was filed related to the drug Dontacit. Exwella’s attorneys assess the likelihood of losing the lawsuit as remote at 10%. The attorney’s assessment of the loss increased to a range between $ 10,000,000 and $ 15,000,000.
4. A new product liability lawsuit was filed related to the drug Noapproval. Exwella’s attorneys assess the likelihood of losing the lawsuit as probable. The attorney’s assessment of the loss increased to a range between $ 2,000,000 and $ 4,000,000.
Required
a. Explain how each lawsuit is accounted for under IFRS. Prepare any journal entries required. Under IFRS, Exwella has a contingent liability of $ 1,000,000 at the beginning of the year related to Nowaya in P13- 5.
b. Compare the litigation loss and contingency liability at the end of the year under U. S. GAAP from P13- 5 and IFRS.