Problem: Following is an excerpt from Hewlett-Packard's notes that accompanied its financial statements for the year ended October 31, 2008:
Search v. HP is a consumer class action filed against HP on October 28, 2003 in Illinois state court alleging that HP has included an electrically erasable programmable read only memory (EEPROM) chip in certain of its LaserJet printers that prematurely advise that user that drum kit needs replacing in violation of Illinois state low. The plaintiffs subsequently filed an amended complaint seeking to expand the class from purchasers of drum kits to purchasers of all HP printer consumables that contain EEPROM chips. The Most current amended complaint seeks certification of an Illinois only class and seek unspecified damages, attorney's fee and costs.
Rich v. HP is a consumer class action filed against HP on may 22, 2006 in the united states District Court for the northern District of California, the suit alleges that HP designed its color inkjet printers to unnecessarily use color ink in addition to black ink when printing black and white images and text. The plaintiffs seeks injunctive and monetary relief on behalf oh a nationwide class.
HP is subject to various federal state lock and foreign laws and regulations concerning environmental protection including laws addressing the discharge if pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, the content of its products and the recycling, treatment and disposal of its products including batteries. In particular, HP faces increasing complexity in its product design and procurement operations as it adjusts to new and future requirements relation to the chemical and materials composition of its product take-back legislation. HP could incur substantial costs, its products could be restricted from entering certain jurisdictions, and it could face other sanctions, if it were violate or become liable under environmental laws or if its products become non-compliant with environmental laws. HP's potential exposure includes fines and civil or criminal sanctions, third-party property damage or personal injury claims and clean up costs. The amount and timing of costs under environmental laws are difficult to predict.
Required to do:
Question 1. Based on the excerpt, how did company treat contingency on its financial statements for the year ended October 31, 2008? What criteria were likely used to lead that treatment?
Question 2. What was the effect on the financial statements of the company's treatment of the contingency?