An estimated loss from a loss contingency should be accrued when
A) It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss can be reasonably estimated
B) The loss has been incurred by the date of the financial statements and the amount of the loss may be material
C) It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss may be material
D) It is probable that a loss will be incurred in a future period and the amount of the loss can be reasonably estimated

Question

Quizplus · Accepted Answer

According to the accounting standard, an estimated loss from a loss contingency should be accrued only if two conditions are met: (1) it is probable that a loss has been incurred as of the financial statement date, and (2) the amount of the loss can be reasonably estimated. Therefore, option A correctly states the conditions for accruing an estimated loss from a loss contingency. Option B is incorrect because it assumes that the loss must have been incurred by the date of the financial statements, which is not a requirement for recognition. Option C is incorrect because it removes the requirement of a reasonable estimate for calculating the amount of loss. Option D is incorrect because it assumes that the loss may happen in the future, which is not a contingency that requires recognition.

An Estimated Loss from a Loss Contingency Should Be Accrued