Explain the accounting principle

Reference no: EM13154190

Amber Inc. is one of the largest pharmacy retailers in mid-America. In its 2009 annual report to shareholders, it made the following disclosure:

In 2000, Amber assigned a number of leases to Bell's Inc. and Home Stores, Inc. as part of the sale of the Company s former Eastern divisions. Amber is contingently liable if Bell's and Home are unable to continue making rental payments on these leases. In 2006, Amber recorded a pretax charge to earnings of $42.7 million to recognize the estimated lease liabilities associated with the Bell's and Home bankruptcies and for a single lease from Amber's former Georgia division. In 2009, Bell's began the liquidation process and Home emerged from bankruptcy and, based on the resolution of various leases, Amber reversed $12.1 million of this accrual.

Explain the accounting principle(s) that required Amber to record the $42.7 million charge in 2006 and the $12.1 million reversal in 2009.

Reference no: EM13154190

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