In the financial statement, contingent liability isa)Recognisedb)Not recognisedc)Adjusted.d)None of the aboveCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Contingent liabilities are known liabilities which might be incurred in. As these are known and probability is there so these are disclosed in the notes to accounts or in footnotes and it is supported by AS 29

Answer

Contingent liabilities are those liabilities which are uncertain or they are depending upon some other future uncertain event they are not probable and the amount of liability is not ascertained but these contingent liabilities are recognised under financial statements according to accounting standard 29 they are generally shown and small footnote after the balance sheet

Answer

Contingent liabilities are potential obligations that may arise in the future, depending on the outcome of uncertain events. These liabilities are not yet certain, but there is a possibility that they may become actual obligations for an entity.

Contingent liabilities are not recognized in the financial statements if they do not meet the criteria for recognition. However, if it is probable that the liability will result in an outflow of resources and the amount can be reliably estimated, then it is recognized as a liability in the financial statements.

Let's discuss the options provided:

a) Recognized: If a contingent liability meets the recognition criteria, it is recognized in the financial statements. This means that it is recorded as a liability on the balance sheet, and the corresponding expense or loss is recognized in the income statement. This ensures that the financial statements provide a true and fair view of the entity's financial position and performance.

b) Not recognized: If a contingent liability does not meet the recognition criteria, it is not recognized in the financial statements. This means that it is not recorded as a liability on the balance sheet, and no expense or loss is recognized in the income statement. However, the contingent liability may need to be disclosed in the notes to the financial statements to provide information about potential risks and uncertainties.

c) Adjusted: Adjusted is not the correct option for contingent liabilities. Contingent liabilities are either recognized or not recognized, depending on whether they meet the recognition criteria. Adjusted typically refers to making changes to the financial statements to correct errors, estimations, or omissions.

d) None of the above: The correct option is a) Recognized. This is because contingent liabilities are recognized in the financial statements if they meet the recognition criteria. If they do not meet the criteria, they are not recognized but may be disclosed in the notes to the financial statements.

In conclusion, contingent liabilities are recognized in the financial statements if they meet the recognition criteria. If they do not meet the criteria, they are not recognized but may be disclosed in the notes to the financial statements.

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