XYZ Limited is a consulting firm, specializing in engineering products and development. Just before the end of the year the company received a notice of a legal case from one of its competitors. The case is related to a potential infringement of the competitor's patent. The in house legal counsel discussed the case with XYZ Limited's management and based on information available concluded that the lawsuit was possible, however, there was not enough information to estimate the potential loss. This lawsuit is considered a contingent liability, which should be only described in the notes to the financial statements as the second criteria (i.e. reasonable estimate of loss amount) was not met.

A local manufacturer of Blue-ray players sells products nationwide. As part of customer service, the manufacturer provides a warranty to repair or replace its products one year after the sale. Using accumulated historical information, the manufacturer estimated that each sold player results, on average, in $10 of warranty expenses. During the current year, the manufacturer sold 1,000 players. As it is probable that the manufacturer incurred warranty expenses (i.e. by selling the players that will need to be fixed later when customers return them) and the amount of warranty expense can be reasonably estimated (based on historical information), a contingent liability related to warranty expenses should be recorded in the financial statements.