Contingent liabilities are*1 pointnot recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote.recognised in the financial statements unless the possibility of an outflow in settlement is remote.
Question
Contingent liabilities are*1 pointnot recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote.recognised in the financial statements unless the possibility of an outflow in settlement is remote.
Solution
Contingent liabilities are recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote.
Here's why:
A contingent liability is a potential liability that may occur in the future, such as pending lawsuits or product warranties. These are uncertainties which may result in a loss for the company.
According to the accounting standards, a contingent liability is only recognised in the financial statements when it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
If the possibility of an outflow in settlement is remote, then it is not recognised in the financial statements but disclosed in the notes to the financial statements. This is because it is not considered probable, and therefore does not meet the criteria for recognition in the financial statements.
So, the correct answer is: Contingent liabilities are recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote.
Similar Questions
Contingent liabilities are: Reading required Learning objective 9.3.1 on page 254-255Group of answer choicesrecognised in the financial statements unless the possibility of an outflow in the settlement is remote.not recognised in the notes to the financial statements because the possibility of an outflow in the settlement is remote.disclosed in the notes to the financial statements unless the possibility of an outflow in the settlement is remote.disclosed in the notes to the financial statements because the possibility of an outflow in the settlement is remote.
Liabilities which do not meet the recognition criteria and where the possibility of an outflow of economic resources is remote should: Reading required Learning objective 9.4 on page 256.Group of answer choicesnot be recognised/disclosed in the financial statement at all.be recognised as an accrual.be recognised as a provision.be disclosed as a contingent liability.
A contingent liability need only be disclosed in the financial statement notes when the likelihood of the contingency is Group of answer choicesreasonably possible.probable.remote.unlikely.
A contingent liability is defined as a: I II III IV Possible obligation that arises from past event YES YES NO NO Possible obligation WHOSE EXISTENCE WILL BE confirmed by the occurrence of an uncertain future event YES NO YES NO Possible obligation not recognised because the outflow of economic benefits to settle the obligation is not probable. YES NO YES NO Possible obligation that is measured reliably NO NO YES YES A.IV B.III C.II D.I
Contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occurGroup of answer choicesTrueFalse
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