Which of the following is the proper treatment for a contingency that is probable but the exact amount of which is not known? The amount can be estimated.
A) The liability should be doubled following conservatism.
B) The liability should be estimated and recorded.
C) The liability should be ignored.
D) The liability should be reported in the notes to the financial statements.

Question

Quizplus · Accepted Answer

When a contingency is probable but the exact amount is not known, the liability should be estimated and recorded. The estimate should be based on the available information and should be realistic and reliable. Ignoring the liability or reporting it only in the notes to the financial statements is inappropriate, as it could misrepresent the true financial position of the company. Doubling the liability following conservatism would also be inappropriate, as it would not reflect the best estimate available.

Which of the Following Is the Proper Treatment for a Contingency