Question

Contingent liability appears as a footnote in the balance sheet. This is in accordance with the accounting principle of __________.

• A. Consistency
• B. Disclosure
• C. Materiality
• D. Conservatism

Answer 1

The correct option is B Disclosure

The principle of full disclosure requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes. This enables the users to make correct assessment about the profitability and financial soundness of the enterprise and help them to take informed decisions.

Therefore, any type of contingent liability should be disclosed in the footnotes to the financial statements to give a clear idea of the liability which may or may not arise.