Note – Please take our quiz ‘Quiz 17 – Contingent Liabilities – (Answers)‘ on this page before going through the below answers. Only the top 3% of our audience scored 10/10 in all of them.
- Name – Quiz 17 – Contingent Liabilities – (Answers)
- Topic – Contingent Liabilities
- Answers with Explanation
Q1. If there is a remote chance for the occurrence of a contingent liability, it is _____.
Ans. If there is a remote chance for liability to occur then it is not required to be disclosed or recorded.
Q2. Letter of credit issued is a contingent liability.
Ans. The given statement is True. Letter of credit issued is a contingent liability which is dependent upon default by the person by whom it was issued.
Q3. Contingent liability is recorded only when it is virtually certain.
Ans. The given statement is False. Contingent liability is to be recorded/disclosed as soon as the amount of liability is estimated.
Q4. For a business, being a ‘guarantor’ may lead to a future contingent liability.
Ans. The given statement is True. Being a guarantor for someone may arise a contingent liability for the business in future.
Q5. Contingent liabilities are recorded as soon as they can be _____.
Ans. Unlike contingent assets, contingent liabilities are disclosed as soon as they can be estimated.
Q6. Payment for _____ may be a contingent liability.
Ans. Insurance claim raised against your firm is an example of contingent liability. This is only for general understanding, however, as per GAAP/IFRS, the rules & accounting may differ for insurance claim payments.
Q7. Which of the following is an example of contingent liability?
Ans. Product warranty is a contingent liability that depends on some future uncertain default in the product. It may or may not arise.
Q8. Contingent liabilities are disclosed in _____.
Ans. Contingent liabilities are shown in ‘notes to accounts’. They are additional notes to a business’s financial statements.
Q9. A _____ in a court case usually results in a contingent liability for the business.
Ans. Losing a court case most often results in the certainty of the liability which was uncertain before. This becomes a contingent liability for the business.
Q10. Contingent liability may occur depending upon _____ future events.
Ans. Contingency relates to uncertainty therefore contingent liability depends upon an uncertain future event.
Q11. Outstanding expense is a contingent liability.
Ans. The given statement is False. Outstanding expense is not a contingent liability because a contingent liability may or may not incur, however, an o/s expense is always supposed to be paid & is not based on a contingency. It is a current liability.