If an event makes it probable that a company will experience a cash outflow but it cannot reasonably estimate the amount, the contingent liability
A) should be recorded in the accounts.
B) should be disclosed in the notes to the financial statements.
C) should not be recorded or disclosed in the notes until the contingency actually happens.
D) must be paid for the amount estimated.

Question

Quizplus · Accepted Answer

If a contingency makes it likely that a company will experience a cash outflow but the amount cannot be reasonably estimated, the contingency should be disclosed in the notes to the financial statements. This is done to inform users of the financial statements about the potential impact on the company's financial position and results of operations. However, it should not be recorded in the accounts until the contingency actually happens and the amount can be reasonably estimated.

If an Event Makes It Probable That a Company Will