RST has been sued by a competitor for a potential copyright infringement. Legal advice is divided over the likelihood of the success of the claim and the likely damages, if any. It would be shown as:

Question

Quizplus · Accepted Answer

Given the uncertainty surrounding both the outcome of the claim and the potential damages, this situation is best described as a contingent liability. According to accounting standards, contingent liabilities are not recognized on the balance sheet but are disclosed in the notes to the financial statements. This is because their outcome is uncertain, and they may not result in an outflow of resources.

RST Has Been Sued by a Competitor for a Potential