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Introduction to Indirect Method

If an inflow ...

Question

If an inflow of economic benefits is probable then contingent asset is disclosed ______________ .

A

In the financial statements

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B

In the report of the approving authority(Board of Directors in the Case of a company, and the corresponding approving authority in the case of any other enterprise)

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C

In the cash flow statement

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D

None of the above

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Solution

The correct option is B In the report of the approving authority(Board of Directors in the Case of a company, and the corresponding approving authority in the case of any other enterprise)
Contingent assets are never disclosed in the financial statements or cash flow statements.
If they are probable, they are only disclosed in the report of an approving authority.
Note: When the realization of income is virtually certain, then the related asset is not contingent asset and recognition is appropriate in the financial statement.

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