How should the supplement be reported

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Reference no: EM133264848

Case Livingston Industries manufactures and sells industrial machinery around the world. The company is heavily dependent upon contracts with transatlantic and transpacific shipping companies to deliver its products. Because fuel prices are unpredictable, several of the shipping companies Livingston uses have included a clause in their contracts allowing them to impose a fuel supplement if the price of Brent Crude Oil fuel exceeds a stipulated price per barrel. Although the price of fuel is not expected to increase anytime soon, Livingston's controller, Liam C. Andrews, is concerned about how he will account for the supplement if it is ever imposed. Typically, contracts state that the supplement may be imposed on June 30 each year to cover the shipping company's fuel purchases during the preceding 12 months. The amount of the surcharge levied on any one shipper, like Livingston, would be based on a formula that takes into account the number of shipments and tonnage shipped by that shipper during the period. Based on Livingston's projections, such a levy could result in several millions of dollars of additional expense.

Livingston has a fiscal year-end of December 31. Mr. Andrews has asked you, a member of his accounting staff, to research the problem of accounting for any fuel supplement that might be imposed.

Question 1. Should the supplement be treated as an expense of the period in which it is imposed, or should it be apportioned between the current and preceding periods in some manner?

Question 2. How should the supplement be reported (classified) in the financial statements?

Question 3. What type of risk disclosure (if any) should be included in the financial statements?

Question 4. What are the accounting issues in this case?

Question 5. What literature will we research to resolve these ideas?

Question 6. Who are the readers of this paper?

Question 7. What are the readers' concerns?

Question 8. What are the purposes of this paper?

Question 9. What alternative solutions should I consider for solving the accounting issues?

Question 10. What are the main points (conclusions) I need to make in this paper?

Question 11. What material should I include to make these conclusions clear and meaningful to the readers?

Reference no: EM133264848

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