Contingent liability. [Dec. 2021, 1 Mark]
Options
A
B
C
D
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Theoretical FrameworkQ-1 | Contingent Assets and Contingent LiabilitiesQuestion 4636 of 110
All Questions Correct Answer
✅ Option — Correct Option
All Options:
- A
- B
- C
- D
Detailed Solution & Explanation
Contingent liability:
(a) A contingent liability is a possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within the control of the enterprise.
Possible obligation - An obligation is a possible obligation if, based on the evidence
available, its existence at the balance sheet date is considered not probable; or
(b) A contingent liability is a present obligation that arises from past events but is not
recognised because:
i. it is not probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; or
ii. a reliable estimate of the amount of the obligation cannot be made. It is said
to be 'probable' if chances of its happening are more than not happening i.e.
probability is more than half.
Key Concepts to Understand
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