Question

Management can estimate the amount of loss that will occur if a foreign government expropriates some...

Management can estimate the amount of loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably possible, a loss contingency should be

  1. Disclosed but not accrued as a liability.
  2. Disclosed and accrued as a liability.
  3. Accrued as a liability but not disclosed.
  4. Neither accrued as a liability nor disclosed.

(Give the correct answer with explanation)

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Answer #1

1) A . Disclosed but not accrued as a liability

Reason :

(a) A loss contingency is accrued if it is probable that a liability has been incurred at the balance sheet date and the amount of the loss is reasonably estimable. If no accrual is made for a loss contingency because one or both of the conditions above are not met, disclosure of the contingency shall be made when it is at least reasonably possible that a loss was incurred. Therefore, this loss should be disclosed, but not accrued as a liability.

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