A loss 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 has been 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

A loss contingency can be accrued when the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred. This means that there is a likelihood of loss and an estimate can be made to recognize the loss in the financial statements. Option A is incorrect because the availability of funds does not determine the recognition of loss contingency. Option B is incorrect because impairment is a separate concept that may or may not result in a loss contingency. Option D is incorrect because an estimate should be made to determine the amount of the loss.

A Loss Contingency Can Be Accrued When