Question

Webcam ces Mailings Review View Axay .A ETE === = 2+ I AaBbcd AaBbc AaBbcc AaBbCel AaBbcc Aar I Normal Strong Subtitle Title - Emphasis Heading 1 Styles Paragraph SIE 6) Contingent liabilities - what are the 3 components and issues regarding contingent liabilities? When does such have to appear in the financial numbers, when in the footnotes, or perhaps no where? I

Answer 1

A contingent liability is a liability that is to be met on an uncertain date in the future, even it is unknown whether it is to be paid or not, because the outcome could be positive or negative.

The contingent liability  cannot be crystalised as an expenditure till the future point come. Hence, the liability cannot be recognized as expenditure but shall be disclosed in the financial statements.

Components of Contingent Liabilities: There are three GAAP-specified categories of contingent liabilities:

i. Probable: These contingencies are likely to occur in the near future and can be reasonably estimated.

ii. Possible: These contingencies do not have possible chance of being realized, however they are unlikely to be neglected.

iii. Remote: These contingencies are not likely to occur and chances of realization are remote.

An enterprise should disclose the possible amount, but need not to be recognized or shown in the statements. Such contingencies shall be included in

i. Financial Numbers: When the contingencies are realized then they should be included in financial numbers.

ii. Foot notes: When the contingencies are possible to occur in the near future then they have to be disclosed in the footnotes.

iii.There is no need to disclose the contingencies any where if they are remote or not possible.