If a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur the contingent liability
A) should be recorded in the accounts.
B) should be disclosed in the notes accompanying the financial statements.
C) should not be recorded or disclosed in the notes until the contingency actually happens.
D) must be paid for the amount estimated.

Question

Quizplus · Accepted Answer

When a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur, it should be disclosed in the notes accompanying the financial statements. This provides users of the financial statements with information about potential future obligations without requiring the company to recognize a liability that may not materialize. Recording it in the accounts or paying the estimated amount is not required unless it is probable and the amount can be reasonably estimated.

If a Contingent Liability Is Reasonably Estimable and It Is