n April 20, 2010, an explosion at BP PLC’s Macondo well in the Gulf of Mexico caused the largest oil spill and one of the worst environmental disasters in U.S. history. Because the incident occurred at the Deepwater Horizon drilling rig, this incident is often referred to as the Deepwater Horizon spill. Approximately 4.9 million barrels of oil were released, threatening the marine environment of the Gulf of Mexico as well as the environment and communities of the Gulf Coast region of the United States. In addition, 11 workers died and 17 were injured in the explosion. While BP bore primary legal responsibility for the spill, Transocean Corporation (the drilling rig operator) and Halliburton Company (the construction contractor) were also held partially responsible. The spill’s financial costs to BP were enormous but also highly uncertain in the years that followed. Initially, the company incurred large costs to respond to the explosion and contain the spill. As time passed, the disaster set in motion a complex set of investigations and court cases that resulted in numerous fines and damage awards. In addition, BP made expensive commitments to support various environmental initiatives in the Gulf Cost region. Required: How did the spill-related costs recognized by BP in its financial statements through 2014 differ from a statistical estimate of the total expected costs that the company’s senior management might have prepared and used internally over the same time frame? For each category of contingent liability—environmental, litigation and claims, and Clean Water Act penalties—BP asserts that it is not possible to reliably estimate the full extent of the company’s ultimate economic exposure. Identify a specific reason for this uncertainty for each category. Why did BP maintain the $3,510 million provision for the penalty it will have to pay under the U.S. Clean Water Act after the district court’s finding of gross negligence and willful misconduct called this amount into question? In 2015 and 2016, BP recognized additional spill-related costs of $18.6 billion, bringing the total cumulative costs recognized across the four categories to over $66 billion. Based on the above information, make an informed guess about how these newly recognized costs were distributed across the four cost categories. How might accounting recognition and disclosure of contingent liabilities be improved to enable readers to formulate better estimates? please answer in an essay format.

n April 20, 2010, an explosion at BP PLC’s Macondo well in the Gulf of Mexico caused the largest oil spill and one of the worst environmental disasters in U.S. history. Because the incident occurred at the Deepwater Horizon drilling rig, this incident is often referred to as the Deepwater Horizon spill. Approximately 4.9 million barrels of oil were released, threatening the marine environment of the Gulf of Mexico as well as the environment and communities of the Gulf Coast region of the United States. In addition, 11 workers died and 17 were injured in the explosion. While BP bore primary legal responsibility for the spill, Transocean Corporation (the drilling rig operator) and Halliburton Company (the construction contractor) were also held partially responsible. The spill’s financial costs to BP were enormous but also highly uncertain in the years that followed. Initially, the company incurred large costs to respond to the explosion and contain the spill. As time passed, the disaster set in motion a complex set of investigations and court cases that resulted in numerous fines and damage awards. In addition, BP made expensive commitments to support various environmental initiatives in the Gulf Cost region. Required: How did the spill-related costs recognized by BP in its financial statements through 2014 differ from a statistical estimate of the total expected costs that the company’s senior management might have prepared and used internally over the same time frame? For each category of contingent liability—environmental, litigation and claims, and Clean Water Act penalties—BP asserts that it is not possible to reliably estimate the full extent of the company’s ultimate economic exposure. Identify a specific reason for this uncertainty for each category. Why did BP maintain the $3,510 million provision for the penalty it will have to pay under the U.S. Clean Water Act after the district court’s finding of gross negligence and willful misconduct called this amount into question? In 2015 and 2016, BP recognized additional spill-related costs of $18.6 billion, bringing the total cumulative costs recognized across the four categories to over $66 billion. Based on the above information, make an informed guess about how these newly recognized costs were distributed across the four cost categories. How might accounting recognition and disclosure of contingent liabilities be improved to enable readers to formulate better estimates? please answer in an essay format.

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter6: Deductions And Losses: In General

Section: Chapter Questions

Problem 1RP

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The spill’s financial costs to BP were enormous but also highly uncertain in the years that followed. Initially, the company incurred large costs to respond to the explosion and contain the spill. As time passed, the disaster set in motion a complex set of investigations and court cases that resulted in numerous fines and damage awards. In addition, BP made expensive commitments to support various environmental initiatives in the Gulf Cost region.

Required:

How did the spill-related costs recognized by BP in its financial statements through 2014 differ from a statistical estimate of the total expected costs that the company’s senior management might have prepared and used internally over the same time frame?
For each category of contingent liability—environmental, litigation and claims, and Clean Water Act penalties—BP asserts that it is not possible to reliably estimate the full extent of the company’s ultimate economic exposure. Identify a specific reason for this uncertainty for each category.
Why did BP maintain the $3,510 million provision for the penalty it will have to pay under the U.S. Clean Water Act after the district court’s finding of gross negligence and willful misconduct called this amount into question?
In 2015 and 2016, BP recognized additional spill-related costs of $18.6 billion, bringing the total cumulative costs recognized across the four categories to over $66 billion. Based on the above information, make an informed guess about how these newly recognized costs were distributed across the four cost categories. How might accounting recognition and disclosure of contingent liabilities be improved to enable readers to formulate better estimates?

please answer in an essay format.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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