Question

The Thackeray Company is being sued and believes it is 'reasonably possible' that the company will lose the suit. The company estimates losses of $40,000. Which of the following is true with relation to this possible loss?

Mark all that apply.

• The company should record an expense for the possible loss.

• The company should record a liability for the possible amount owed.

• The company should disclose the possible loss in its footnotes

• The company does not need to record or disclose anything related to the possible loss/liability

Answer 1

Ans is

• The company should disclose the possible loss in its footnotes

Reason:-

It's a reasonable possibility that the firm will lose the suit. Hence, it is a contingent liability.

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