Contingent liabilities are: Reading required Learning objective 9.3.1 on page 254-255Group of answer choicesrecognised in the financial statements unless the possibility of an outflow in the settlement is remote.not recognised in the notes to the financial statements because the possibility of an outflow in the settlement is remote.disclosed in the notes to the financial statements unless the possibility of an outflow in the settlement is remote.disclosed in the notes to the financial statements because the possibility of an outflow in the settlement is remote.
Question
Contingent liabilities are: Reading required Learning objective 9.3.1 on page 254-255Group of answer choicesrecognised in the financial statements unless the possibility of an outflow in the settlement is remote.not recognised in the notes to the financial statements because the possibility of an outflow in the settlement is remote.disclosed in the notes to the financial statements unless the possibility of an outflow in the settlement is remote.disclosed in the notes to the financial statements because the possibility of an outflow in the settlement is remote.
Solution
According to AASB 137/IAS 37, contingent liabilities are not recognised in the financial statements. Instead, they are disclosed in the notes to the financial statements, unless the possibility of an outflow of resources embodying economic benefits is remote.
The reason for this is that a contingent liability represents a potential financial obligation that depends on a future event occurring or not occurring. Because of this uncertainty, it is not appropriate to recognise it as a liability in the financial statements. However, to ensure that users of the financial statements are fully informed about the potential obligations, they are disclosed in the notes.
So, the correct answer is "disclosed in the notes to the financial statements unless the possibility of an outflow in the settlement is remote."
Similar Questions
Contingent liabilities are*1 pointnot recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.recognised in the notes to the financial statements because the possibility of an outflow in settlement is remote.recognised in the notes to the financial statements unless the possibility of an outflow in settlement is remote.recognised in the financial statements unless the possibility of an outflow in settlement is remote.
Liabilities which do not meet the recognition criteria and where the possibility of an outflow of economic resources is remote should: Reading required Learning objective 9.4 on page 256. Group of answer choices not be recognised/disclosed in the financial statement at all. be recognised as an accrual. be recognised as a provision. be disclosed as a contingent liability.
A contingent liability need only be disclosed in the financial statement notes when the likelihood of the contingency is Group of answer choicesreasonably possible.probable.remote.unlikely.
A contingent liability is defined as a: I II III IV Possible obligation that arises from past event YES YES NO NO Possible obligation WHOSE EXISTENCE WILL BE confirmed by the occurrence of an uncertain future event YES NO YES NO Possible obligation not recognised because the outflow of economic benefits to settle the obligation is not probable. YES NO YES NO Possible obligation that is measured reliably NO NO YES YES A.IV B.III C.II D.I
A contingent liability is defined as a:
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