Accountıng Iı Deneme Sınavı Sorusu #1036326
There is a lawsuit filed against a company for damages claiming an indemnity of 200,000 TL. The company will probably lose the lawsuit, however the amount of indemnity cannot be estimated reliably.
How will the company report this on its balance sheet?
by recording as unearned revenue |
by recording as accounts receivable |
by recording as cash inflow |
by not recording anything |
by disclosing a contingent liability in the footnotes |
Contingent liabilities are similar to estimated liabilities in nature, as both of them represent possible future liabilities arising from past events. However, they differ in terms of the level of uncertainty included. The estimated liabilities can be reported in financial statements to the extent they are reliably measured, whereas the contingent liabilities are reported just in footnotes because of the high level of uncertainty included in their measurement or existence. The correct answer is E.
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