Question

A manufacturer of household appliances may incur a loss due to the discovery of a defect in one of its products.

The occurrence of the loss is reasonably possible and the resulting costs can be reasonably estimated.

This possible loss should be:

ACCRUED DISCLOSED IN THE NOTES

A.YES NO

B.YES YES

C.NO YES

D.NO NO

Answer 1

Answer is A. YES NO

A Contingent liability should be provided for in the books if the following recognition criteria are met

· It is probable that loss will be incurred

· The amount of loss can be reasonably estimated

In the given situation case it is necessary to recognise the Provison since the occurrence of loss is reasonably possible and the amount can be reasonably estimated. Hence the contingent liability should be accrued as Provison in the books. A disclosure is necessary only for contingent liability which cannot be provided and if one of the recognition criteria is not met. Hence answer is A.