A Contingent Liability Should Be Shown by Way of a Note

question 2

Multiple Choice

A contingent liability should be shown by way of a note to the accounts when:

• A) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required.
• B) the amount of the obligation cannot be measured reliably.
• C) estimation procedures were necessary to determine its amount.
• D) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required and the amount of the obligation cannot be measured reliably.

---

Definitions:

Corporation Not Bound

Indicates a scenario where a corporate entity is not legally obligated or tied to an agreement or contract.

Pre-Incorporation

Activities and agreements that occur before the formal legal establishment of a company.

Employment Contract

A legally binding agreement between an employer and an employee that outlines the terms and conditions of employment.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.