
Concept explainers
Concept Introduction:
Contingent liabilities:
Contingent liabilities may be defined as the liabilities which arise out of occurrence or non-occurrence of uncertain future event e.g. lawsuit filed against the company, guarantees made by the company etc. In order to be recorded as a liability in the books, the future event should be probable and a reliable estimate of the liability should be made. When the event is probable but estimate of the liability cannot be made with certainty and if the event is reasonable possible, they should be reported in the notes to financial statements as
Requirement 1:
The accounting treatment to be followed in the given situation
Concept Introduction:
Contingent liabilities:
Contingent liabilities may be defined as the liabilities which arise out of occurrence or non-occurrence of uncertain future event e.g. lawsuit filed against the company, guarantees made by the company etc. In order to be recorded as a liability in the books, the future event should be probable and a reliable estimate of the liability should be made. When the event is probable but estimate of the liability cannot be made with certainty and if the event is reasonable possible, they should be reported in the notes to financial statements as contingent liability. When the occurrence of the event is remote, no disclosure is required to be made.
Requirement 2:
The accounting treatment to be followed in the given situation

Want to see the full answer?
Check out a sample textbook solution
Chapter 11 Solutions
FUND.ACCT.PRIN.(LOOSELEAF)-W/ACCESS
- Sierra Tech Industries purchased an asset costing $80,000 that is expected to produce 600,000 units and have a salvage value of $8,000. In the first year, 100,000 units are produced; in the second year, 95,000 units are produced; and in the third year, 88,000 units are produced. Using the units-of-production method, what is the book value of the asset at the end of year 3?arrow_forwardWaka Company had cash sales of $78,275, credit sales of $97,450, sales returns and allowances of $1,500, and sales discounts of $4,875. Calculate Waka's net sales for this period.arrow_forwardProvide answerarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





