An entity has determined that the possibility of an outcome of an obligating event related to a contingent liability occurring in the future is remote. Which one of the following is the effect on the financial statements of the entity? A A provision is recorded and disclosed. B C D The contingent liability is not disclosed. A provision is recorded. The contingent liability is disclosed.
Added by Brian B.
Step 1
A contingent liability is a potential obligation that may arise depending on the outcome of a future event. Show more…
Show all steps
Your feedback will help us improve your experience
Qudsiya Anis and 87 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
Blue Sky Conglomerate is being sued for damages. When preparing the financial statements as of 31 December 20X0, management was of the opinion that the probability of any payments having to be made was remote. In preparing the 20X1 financial statements management changed its view and believed that it was possible that such payments would have to be made, and in preparing the 20X2 statements its view was that such payments were probable. For the 20X3 accounts the payment was assessed to be virtually certain and effectively the payments were made in 20X4. In which financial statements should Blue Sky present a note for a contingent liability and in which financial statement should Blue Sky set up a provision? A. Contingent liabilities in the 20X1 financial statements and provision in the 20X2 financial statements B. Contingent liabilities in the 20X0 financial statements and provision in the 20X1 financial statements C. Contingent liabilities and provision in the 20X3 financial statements D. Contingent liabilities in the 20X2 financial statements and provision in the 20X3 financial statements
Qudsiya A.
A contingent liability is a potential liability that may or may not occur depending on the result of an uncertain future event. The relevance of a contingent liability depends on the probability of the contingency, its timing, and the accuracy with which the amount associated with it can be estimated. Discuss all possible accounting treatments for contingent liabilities and your criteria for each case.
James K.
A contingent liability should be reported in a company's financial statements only if the likelihood of a loss occurring is:Multiple ChoiceAt least reasonably possible and the amount of the loss is known.Probable and the amount of the loss can be reasonably estimated.At least reasonably possible and the amount of the loss is reasonably estimable.At least remotely possible and the amount of the loss is known.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD