Possible (20-50%) contingent liabilities are disclosed in notes.

Possible (20-50%) contingent liabilities are disclosed in notes.

• A. Recognise as a provision
• B. Disclose in notes
• C. Ignore
• D. Recognise as revenue

Answer: (B)

When a liability is contingent, you only recognize a provision if the outflow is probable. A 20–50% chance is not probable, so it doesn’t become a provision. Instead, disclose the contingent liability in the notes to the financial statements. The disclosure should describe the nature of the obligation and, if possible, provide an estimate of its financial effect and the uncertainties involved. This approach informs users without overstating liabilities. If the likelihood were actually probable, you would recognize a provision; if the chance were remote, disclosure might not be needed. Recognizing it as revenue or ignoring it would not be appropriate treatments.

When a liability is contingent, you only recognize a provision if the outflow is probable. A 20–50% chance is not probable, so it doesn’t become a provision. Instead, disclose the contingent liability in the notes to the financial statements. The disclosure should describe the nature of the obligation and, if possible, provide an estimate of its financial effect and the uncertainties involved. This approach informs users without overstating liabilities. If the likelihood were actually probable, you would recognize a provision; if the chance were remote, disclosure might not be needed. Recognizing it as revenue or ignoring it would not be appropriate treatments.