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Worked-example setupScope and assumptions
- Ridgeway Manufacturing, the product, the claim, the evidence, the dates, and the amounts are fictional and supplied for instruction.
- Ridgeway has a December 31, 2026, reporting date and expects to issue its financial statements on February 24, 2027.
- A customer reported a possible defect on December 18, 2026, in equipment that Ridgeway delivered and the customer installed during November 2026.
- A January 19 laboratory report confirms that the defect existed in the delivered equipment at December 31; the report supplies evidence about the December condition rather than a new January condition.
- Based on all information available before issuance, an unfavorable outcome is supplied as probable and a $240,000 to $400,000 loss range is reasonably estimable.
- No amount within the supported range is a better estimate than another amount.
- Period
- Annual reporting period ending December 31, 2026; statements expected to be issued February 24, 2027
- Units
- US dollars and calendar dates
- Rounding
- Whole dollars; no rounding required
Begin with the condition, not the laboratory-report date
Ridgeway delivered the equipment in November, and the customer reported the possible defect on December 18. Those facts place the alleged defect before the December 31 reporting date. The January 19 laboratory report adds evidence about that existing condition. It does not create the defect in January.
ASC 450-20-25-2 uses information available before the financial statements are issued to test whether a loss was probable at the reporting date. Under the supplied facts, the first accrual condition is met. The later report helps Ridgeway assess a December condition.
Test whether Ridgeway can estimate the loss
Counsel and the claims team support a range from $240,000 to $400,000. That range is a reasonable estimate, so the second accrual condition is also met. Under ASC 450-20-30-1, Ridgeway would record the one amount that the evidence supports more strongly than the other amounts. Here, the evidence does not support one point in the range more strongly than another.
Ridgeway therefore records the minimum amount in the supported range:
Dr Loss from product claim $240,000
Cr Estimated product-claim liability $240,000
The minimum is not a general conservative choice. It is the required result for this supplied range because no amount is a better estimate. The checked calculation also preserves $160,000 of exposure above the amount recorded:
high end of supported range $400,000
amount accrued (240,000)
--------
possible additional exposure $160,000
Complete the disclosure analysis
Recording $240,000 does not end Ridgeway's work. ASC 450-20-50-3 requires a disclosure analysis when at least a reasonable possibility exists that the loss exceeds the amount accrued. ASC 450-20-50-4 requires the note to describe the matter and quantify the possible loss or range. If Ridgeway cannot make that estimate, the note must say so.
Ridgeway's support should therefore connect the product claim, the recorded amount, and the possible additional exposure. The final note still depends on materiality, complete facts, and the other applicable disclosure requirements. This example does not supply final note wording.
Change the date and change the answer
Suppose instead that the equipment worked as intended through December 31 and was damaged by a new customer incident on January 8. Even if a loss from that incident becomes probable and estimable before issuance, the condition did not exist at year end. ASC 450-20-25-6 does not permit Ridgeway to accrue that new January condition in its 2026 statements. Ridgeway would evaluate the separate subsequent-event disclosure requirements.
The evidence date matters, but it does not control the answer by itself. Ask which condition the evidence describes and when that condition existed.
Verified calculation · liability contingency analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- loss contingencies
- 1 field
Inspect data
{
"product_claim": {
"better_estimate": null,
"estimate_high": 400000,
"estimate_low": 240000,
"existing_condition_at_balance_sheet_date": true,
"probability_conclusion": "probable"
}
}Recomputed result
| Measure | Value |
|---|---|
| gain contingency recognized | 0 |
| gain contingency review count | 0 |
| loss contingency disclosure review count | 1 |
| product claim additional exposure | 160,000 |
| product claim disclosure review flag | 1 |
| product claim recognized loss | 240,000 |
| total additional exposure | 160,000 |
| total recognized contingency | 240,000 |