Concept Introduction:
To define: The
Explanation of Solution
Contingent liability: Contingent liability is including the amount of loss that the company owes for the future event. If in the future, the condition occurs when there is too much uncertainty surrounding then, the loss occurs while recovering that situation named as contingent liability.
Three categories used to classify the contingent liability are:
- Probable: Probable contingency involved the event that is highly expected to occur.
- Reasonable possible: Reasonable possible is include the situation when the possibility of occurring the event is more than remote but less than probable.
- Remote: when there is no chance of occurrence of future events, it called as remote contingency.
Examples of contingent liabilities are:
- Unresolved legal actions.
- Disagreements of income tax by internal revenue service while auditing.
- Assertions for the warranties.
- The receivable that not sell yet, the company agree to purchase those receivables.
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Chapter 17 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
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