On March 1, 2017, a damaged pipeline at a Royal Blue deep water production field, about 100 miles off the Louisiana coast, spilled what's been officially estimated at 90,000 gallons of oil into the Gulf of Mexico before the leak was stopped. As of March 15, 2017 (when the December 31, 2016 financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company because of the spill. The company fully anticipates that suits will be filed and claims asserted for damages. Because many of the casualties were uninsured and the company is considered at fault, Royal Blue will have to cover the damages from its own resources. Respond to the following prompts:
What conditions must exist before a loss contingency can be recorded in the accounts?
Discuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2017.