Chapter 11, Problem S11.12SE

To determine

Treatment of Contingent Liabilities:

Contingent liabilities are liabilities which may arise in future depending on the future event to happen. The treatment of contingent liability shall be made depending upon the type of contingent liability. There are three types of contingent liabilities:

Remote Contingent liabilities: The Remote contingent liabilities are those which are not expected to arise in future and hence nor recorded in financial statement as liability and nor disclosed in the notes to account.

Reasonably possible Contingent liabilities: These are such liabilities, the possibilities of arising is quite low and therefore, the not recorded as liabilities and but shown as foot note in financial statement.

Probable Contingent liabilities: The Probable contingent liabilities are those contingent liabilities, the expectation of arising of whom are more than 50%. Therefore, the it will recorded as liabilities if the amount can be estimated with reasonable degree of accuracy and shall be disclosed in the notes to accounts if the amount cannot be estimated.

Requirement1:

The Treatment of liability form current law suit.

To determine

Requirement2:

The Treatment of liability from the notice of being sued.

To determine

Requirement3:

The Treatment of liability arising from a case in which the business is a defendant.