Question

With respect to contingent liabilities, there are three different likelihood's of the liabilities occurring, of those three which one does not required any kind of journal entry or notes to the financial statements?

Answer 1

There are three different likelihood's of the contigent liabilities occurring and they are as below:

1.Probable contigencies:-These type of liabilities are likely to occur and can be reasonable estimated. These type of contigent liabilities are recognized in the financial statements by recording the amount as an expense in the income statement and a liability in balance sheet.

2.Possible contigencies:-These type of liabilities do not have a chance of being realized and are not necessarily considered unlikely either.The chance of occurrence of future events is between probable and remote.No journal entry is required for this type of contigencies, but it should be disclosed via a foot note in the financial statements.

3.Remote contigencies:-These type of contigencies are not likely to be realized and are not reasonably propable.These type of contigencies are not required to be recorded in the financial statements by any kind of journal entry or disclosure notes.