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    Question

    In the financial statements, contingent liability is

    ________
    A Recognised Correct Answer Incorrect Answer
    B Not recognised Correct Answer Incorrect Answer
    C Adjusted Correct Answer Incorrect Answer
    D Recorded Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Contingent liabilities are potential obligations that may arise from past events and whose existence depends on uncertain future events. These liabilities are disclosed in the notes to financial statements if they meet certain criteria, but they are not recognized in the financial statements. Under the accounting principles, recognition of a liability in the financial statements requires that the liability meets the definition of a liability, the amount of the liability can be reliably measured, and it is probable that an outflow of resources will be required to settle the obligation. Contingent liabilities are not recognized in the financial statements because they do not meet the criteria for recognition.

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