Question

A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is:

Answer 1

Answer:

Certain and amount can be estimated reliably.

Explanation:

According to IAS 37, a provision is a liability that arises as a result of a past event, for which it is more likely than not (Probability > 50%) that cash outflow will be required to settle the obligation in future. An the amount of liability can be estimated reliably.

Thus, a loss contingency will be accounted for in company's financial statements only if it is a provision (the liability can be determined with certainty) as above.

Contingent liabilities are not presented on the face of the Financial Statements but are disclosed in the notes.