C has initiated a lawsuit against Agency A for recovery of damages when accidentally one of the vehicles owned by the agency collided with the car then driven by C. The Chief Legal Counsel of the Agency estimates from experience that at December 2015, the entity has a 60% chance of winning the lawsuit and thereby avoiding the payment of damages. Furthermore, the counsel estimates that the agency has 20% chance of being ordered to pay C damages of P100,000 and a 20% chance of being ordered to pay C damages of P10,00Use the facts given in No. 1, but this time assumes that on December 31, 2015, the Chief Legal Counsel of Agency A estimates from past experience that the possibility of losing the case filed by C is remote.-State whether a contingent liability or contingent asset exists.-Explain your answers by stating the criteria of your answers below.

Contingent liability or contingent asset is a probable liability or asset for which the recognition…

Answered: C has initiated a lawsuit against…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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C has initiated a lawsuit against Agency A for recovery of damages when accidentally one of the vehicles owned by the agency collided with the car then driven by C. The Chief Legal Counsel of the Agency estimates from experience that at December 2015, the entity has a 60% chance of winning the lawsuit and thereby avoiding the payment of damages. Furthermore, the counsel estimates that the agency has 20% chance of being ordered to pay C damages of P100,000 and a 20% chance of being ordered to pay C damages of P10,00
Use the facts given in No. 1, but this time assumes that on December 31, 2015, the Chief Legal Counsel of Agency A estimates from past experience that the possibility of losing the case filed by C is remote.

-State whether a contingent liability or contingent asset exists.
-Explain your answers by stating the criteria of your answers below.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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