Contingent liabilities examples

Below you will find a series of examples of disclosures of contingent liabilities of different companies worldwide.

It is important to say that in the notes to the financial statements of the companies that have contingent liabilities, a reference as such will never be made to any element stipulated in the balance sheet since, according to paragraph 27 of IAS 37, these are disclosed but not they are included within any liabilities item inside the balance sheet.

The disclosures shown below have the characteristic that they are a possible outflow of resources from the companies analyzed; the possible obligations do not meet the definition of a liability.

The classification of obligations is important because provisions must be recognized financially in the entity’s statement of position, while contingent liabilities must not.

However, it is important to say that these contingencies can at any time be converted into provisions when these entities consider that there is a probability of outflow of resources.

Example Contingent liabilities Coca-Cola Company

The Company has entered into several proceedings with its labor unions, tax authorities and other parties that primarily involve Coca-Cola FEMSA and its subsidiaries. 

These proceedings have resulted in the ordinary course of business and are common to the industry in which the Company operates.

Such contingencies were classified by the Company as less than probable but not remote, the estimated amount as of December 31, 2017 of these lawsuits is Ps. 64,558, however, the Company believes that the ultimate resolution of such proceedings will not have a material effect on its consolidated financial position or result of operations.

The Company has tax contingencies, most of which are related to its Brazilian operations, amounting to approximately Ps. 51,014 with loss expectations assessed by management and supported by the analysis of legal counsel consider as possible.

Among these possible contingencies, are Ps. 12,346 in various tax disputs related primarily to credits for ICMS (VAT) and Ps. 33,217 related to tax credits of IPI over raw materials acquired from Free Trade Zone Manaus. Possible claims also include Ps. 4,787 related to compensation of federal taxes not approved by the IRS (Tax authorities), and Ps. 664 related to the requirement by the Tax Authorities of State of São Paulo for ICMS (VAT), interest and penalty due to the alleged underpayment of tax arrears for the period 1994-1996. 

The Company is defending its position in these matters and final decision is pending in court.

In recent years in its Mexican and Brazilian territories, Coca-Cola FEMSA has been requested to present certain information regarding possible monopolistic practices.

These requests are commonly generated in the ordinary course of business in the soft drink industry where this subsidiary operates. The Company does not expect any material liability to arise from these contingencies.

Example Contingent liabilities Walmart Company

The Company has entered into several proceedings with its labor unions, tax authorities and other parties that primarily involve Coca-Cola FEMSA and its subsidiaries. 

These proceedings have resulted in the ordinary course of business and are common to the industry in which the Company operates. 

Such contingencies were classified by the Company as less than probable but not remote, the estimated amount as of December 31, 2017 of these lawsuits is Ps. 64,558, however, the Company believes that the ultimate resolution of such proceedings will not have a material effect on its consolidated financial position or result of operations.

The Company has tax contingencies, most of which are related to its Brazilian operations, amounting to approximately Ps. 51,014 with loss expectations assessed by management and supported by the analysis of legal counsel consider as possible. 

Among these possible contingencies, are Ps. 12,346 in various tax disputs related primarily to credits for ICMS (VAT) and Ps. 33,217 related to tax credits of IPI over raw materials acquired from Free Trade Zone Manaus. Possible claims also include Ps. 4,787 related to compensation of federal taxes not approved by the IRS (Tax authorities), and Ps. 664 related to the requirement by the Tax Authorities of State of São Paulo for ICMS (VAT), interest and penalty due to the alleged underpayment of tax arrears for the period 1994-1996. 

The Company is defending its position in these matters and final decision is pending in court.

In recent years in its Mexican and Brazilian territories, Coca-Cola FEMSA has been requested to present certain information regarding possible monopolistic practices.

These requests are commonly generated in the ordinary course of business in the soft drink industry where this subsidiary operates. The Company does not expect any material liability to arise from these contingencies.

Example Contingent liabilities Electrolux Company

The Group is involved in a legal proceeding in Egypt relating to the privatization of an Egyptian subsidiary. The proceeding is currently on-going in the court of first instance in Cairo, Egypt.

Electrolux believes that the lawsuit is without legal merit.

Example Contingent liabilities Nestle Company

The Group is exposed to contingent liabilities amounting to a maximum potential payment of CHF 1860 million( 2017 : CHF 2024 million ) representing potential litigations of CHF 1788 million( 2017 : CHF 1979 million ) and other items of CHF 71 million ( 2017 : CHF 45 million ). Potential litigations relate mainly to labor, civil and tax litigations in Latin America.

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