A contingency can be accrued when
A)it is certain that funds are available to settle the disputed amount.
B)an asset may have been impaired.
C)the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred.
D)it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.

Question

Quizplus · Accepted Answer

Contingencies are liabilities that arise from past events but whose existence is uncertain, and it is probable that they will result in a loss. The accrual of a contingency is appropriate when the amount of the loss can be reasonably estimated, and it is probable that the liability has been incurred. This means that there is a high chance of the liability being settled in the future, and the amount can be estimated with some degree of accuracy. Option A is incorrect because having funds available to settle a disputed amount does not necessarily mean that the liability has been incurred. Option B is incorrect because impairment of an asset may or may not result in a liability, and there may not be a contingency that needs to be accrued. Option D is incorrect because if the amount of the loss cannot be reasonably estimated, there is no basis to record an accrual.

A Contingency Can Be Accrued When