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ASC 450 indicates that contingent gains should not be recognized prior to the gain being “realized” or “realizable.”

ASC 450-30-25-1

A contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization.

A realized gain is one where cash (or other assets, such as claims to cash) has been received without expectation of repayment. A gain is realizable when assets are readily convertible to known amounts of cash or claims to cash. We believe the recognition of a gain is appropriate at the earlier of when the gain is realizable or realized. The assessment of whether a gain is realizable requires significant judgment and should include the evaluation of relevant factors including the following:
  • Whether there is a signed agreement or legally enforceable contract that stipulates the terms of the gain or settlement, and whether the settlement is subject to any pending or expected appeal
  • Whether the counterparty has the ability or wherewithal to pay the amount
  • Whether the right to receive the proceeds meets the definition of an asset in CON 6, Elements of Financial Statements (i.e., a probable future economic benefit obtained or controlled as a result of past transactions or events)
As discussed in FSP 23.4.3, a claim for loss recovery (e.g., an insurance claim) generally can be recognized when a loss event has occurred and recovery is considered probable. If the potential recovery exceeds the loss recognized in the financial statements or relates to a loss not yet recognized in the financial statements, such recovery should be evaluated under the gain contingency model.
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