Entity A has provided a bank guarantee to a bank in relation to a loan provided to entity B. Entity B is solvent and shows no signs of defaulting on the loan. The treatment of the bank guarantee in the records of entity A is to:

Question

Quizplus · Accepted Answer

A bank guarantee is a form of contingency. Entity A has not yet fulfilled its obligation under the guarantee and may never have to do so if entity B does not default on the loan. Thus, entity A should recognise a contingent liability in its records until the outcome is certain.

Entity a Has Provided a Bank Guarantee to a Bank