Question

Explain the term contingencies with examples, and the reporting procedures to report contingencies.

Answer 1

Contingencies are the events that occur in the future, it can be prepared for, but its nature and scope of occurrence is unpredictable.

Contingencies are reported only when the following conditions are satisfied:

• When there is a present obligation out of past events but not a provision.
• The amount cannot be estimated.
• The occurrence is not probable.

Contingent liabilities are recorded only when it is reasonably possible to occur and the amount can be estimated.

If these 2 conditions are not satidfy, then only such contigencies sjhoudl be disclosed in the foot note of the financial statements.