A Contingency Must Be Accrued in the Accounts and Reported

question 17

Multiple Choice

A contingency must be accrued in the accounts and reported in the financial statements when

• A) the amount of the loss can be reliably estimated and it is probable that an asset is impaired or a liability incurred.
• B) it is evident that an asset has been impaired or a liability has been incurred even though the amount of the loss cannot be reliably estimated.
• C) it is not certain that funds will be available to settle damages that may arise from a pending lawsuit.
• D) a loss is expected and its amount is uncertain.

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Definitions:

Specific Environment

The unique external forces and conditions, including competitors, customers, and regulatory bodies, that directly affect how an organization operates.

Task Environment

The immediate external environment that directly influences an organization’s operations, including competitors, suppliers, and customers.

Stakeholders

Individuals or groups with an interest or concern in a business, project, or endeavor, whose outcomes may affect or be affected by the actions of the business or project.

Technological Condition

The current state of technology within a specific field, industry, or society, including advancements, accessibility, and its impacts on processes or behaviours.