Question

Young company is involved in a lawsuit. The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of young company own money as a result of the lawsuit is `a remote and the amount can be reasonably estimated be probable and the amount can be reasonably estimated see reasonably possible and the mall can be reasonably estimated D probable and remote cannot be reasonably estimated.

Answer 1

Answer:

Correct option is Probable and the amount can be reasonably estimated.

Explanation:

As per accounting standards on Contingent liabilities, any liability which is likely to be incurred and which can be estimated effectively and reliably, shall be recorded in the books.

If it is probable but cannot be estimated, then a journal entry may not be recorded, but a foot note may be made.

If contingent liability is only possible (but not probable) only a foot note is required.  

If contingent liability has remote possibility of occurrence, then neither an entry to record the liability nor a footnote is required.