What accounting guidance does Extreme Art Studio follow for legal matters and other contingencies?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
or cash equivalents.
(2) Commitments and Contingencies
The Company may be subject to various claims, legal actions and complaints arising in the ordinary course of business. In accounting for legal matters and other contingencies, the Company follows the guidance in ASC 450, Contingencies, under which loss contingencies are accounted for based upon the likelihood of incurrence of a liability. If a loss contingency is "probable" and the amount of loss can be reasonably estimated, it is accrued. If a loss contingency is "probable" but the amount of loss cannot be reasonably estimated, disclosure is made. If a loss
NOTES TO THE FINANCIAL STATEMENTS December 31, 2023
contingency is "reasonably possible," disclosure is made, including the potential range of loss, if determinable. Loss contingencies that are "remote" are neither accounted for nor disclosed.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2024 FDD)
According to Extreme Art Studio's 2024 Franchise Disclosure Document, the company adheres to ASC 450, Contingencies, for accounting of legal matters and other contingencies. This accounting standard dictates how loss contingencies are handled based on the likelihood of a liability being incurred.
If a loss contingency is deemed "probable" and the amount can be reasonably estimated, Extreme Art Studio will accrue the loss. If the contingency is "probable" but the amount cannot be reasonably estimated, the company will disclose the contingency. For contingencies considered "reasonably possible," disclosure is made, including the potential range of loss if it can be determined. Contingencies that are "remote" are neither accounted for nor disclosed.
The management of Extreme Art Studio believes that any unfavorable outcomes from claims, legal actions, or complaints would not have a material effect on the company's financial position. This suggests that while the company may face legal challenges, they are not expected to significantly impact its financial health.