PART B.

The following three independent sets of facts relate to the possible accrual or the possible

disclosure by other means of a loss contingency.

SITUATION:

A company has adopted a policy of recording self-insurance for any possible losses resulting

from injury to others by the companys vehicles. The premium for an insurance policy for the

same risk from an independent insurance company would have an annual cost of $2,000. During the period covered by the financial statements, there were no accidents involving the companys vehicles that resulted in injury to others.

REQUIRED

Explain the accrual and/ or type of disclosure necessary (if any) and the reasons why such

disclosure is appropriate for each of the three independent situations described. Complete your response to each situation before proceeding to the next situation.