The document discusses necessary disclosures for various financial situations, such as the likelihood of labor disputes, unusual losses, and potential tax claim recoveries. It emphasizes that the disclosure principle requires all relevant data to be communicated to stakeholders, with specific guidelines for different scenarios. For instance, labor disputes typically do not require disclosure, while unusual losses and contingent assets must be documented based on their financial implications.

1. Question: What type of disclosure or accounting do you believe is necessary for
the following items?
a) Because of a general increase in the number of labor disputes and strikes,
both within and outside the industry, there is an increased likelihood that a
company will suffer a costly strike in the near future.
b) A company reports a material unusual and infrequent loss on the income
statement. No other mention is made of this item in the annual report.
c) A company expects to recover a substantial amount in connection with a
pending refund claim for a prior year’s taxes. Although the claim is being
contested, counsel for the company has confirmed the client’s expectation
of recovery.
Answer
The type of disclosure should be made in conjunction with any change in accounting
policy that has a material effect.
Step-by-Step Solution
Step 1: Meaning of Disclosure of Principle
The Disclosure Principle refers to the disclosure of all relevant data, whether monetary
or non-monetary, to creditors, investors and shareholders. Disclosures must be
made by an organization's management.
Step 2: Explaining the types of Disclosure in different items
a) The extended likelihood that the company will endure an excessive strike does
not require any disclosure within the financial statements. The prospect of a
strike is an unavoidable risk for many businesses. This, in combination with the
risks of war, subsidence, etc., falls under the category of general news.
b) A note should depict an unusual and rare misfortune so that the monetary
explanation gives the user little understanding of the nature of the item.
c) Contingent assets that actually affect the financial position of a company
should be disclosed when the surrounding circumstances show that, in all
likelihood, a substantial resource will materialize. In most circumstances, a
resource will not be recognized until a court settlement is reached.