Question

A contingent liability is: Multiple Choice
a.Always of a specific amount.
b.A potential obligation that depends on a future event arising from a past transaction or event.
c.An obligation not requiring future payment.
d.An obligation arising from the purchase of goods or services on credit. An obligation arising from a future event.

Answer 1

Answer:

b. A potential obligation that depends on a future event arising from a past transaction or event.

Explanation:

Contingent liability is that liability depends on some future event based on past transaction or event

Examples - pending investigation, lawsuit in which the amount would be uncertain.

The treatment of the contingent liability in the balance sheet is that it will show in the notes of the financial statement.

Hence, the correct option is b.