A contingent liability is recorded when the likelihood of the contingency is
A) remote.
B) reasonably possible.
C) probable.
D) nil or zero.

Question

Quizplus · Accepted Answer

Contingent liabilities should be recognized when they are probable, which means there is more than a 50% chance that the liability will occur. If the likelihood is less than 50% but still possible, it should be disclosed in the notes to the financial statements. If the likelihood is remote, no disclosure is necessary. Nil or zero likelihood means there is no contingency and therefore no liability to be recorded.

A Contingent Liability Is Recorded When the Likelihood of the Contingency