Question

Liability which depends on happening or not happening of certain event is known as ______________ .

• A. Contingent liability
• B. Fixed liability
• C. Current liability
• D. All of the above

Answer 1

Answer: (A)

Contingent liability

A contingent liability is an amount that may be due depending on future events. Because it cannot be determined whether the amount must be paid until events unfold, the company's likelihood of loss is scored as on of the following:

1. Probable:- The future event or events are likely to occur

2. Reasonably probable:- The chances of a occurrence of future events is between probable and remote

3. Remote:- The chance of future events occurring is slight.

A contingent liability should be recorded in the financial statements when (a) it is probable that a liability has been incurred and (b) the amount of loss can be reasonably estimated.

Lawsuit expenses, Warranty Resreves are some exampkes of contingent liiabilities.