Accounting · Provisions and Contingencies
Complete the sentence below to show the correct accounting treatment and the reason for a legal claim made by a managing director for unfair dismissal: 'The legal claim should (1) ________ because (2) ________.'
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1(1) Not be recorded as a provision but disclosed as a contingent liability; because (2) A possible obligation exists, depending on whether or not some uncertain future event occurs
- 2(1) Be recorded as a provision; because (2) A present obligation exists and outflow is probable
- 3(1) Be recorded as a provision; because (2) A possible obligation exists, depending on whether or not some uncertain future event occurs
- 4(1) Not be recorded as a provision but disclosed as a contingent liability; because (2) A present obligation exists, but the outflow of economic resources is not probable✓
Correct answer
(1) Not be recorded as a provision but disclosed as a contingent liability; because (2) A present obligation exists, but the outflow of economic resources is not probable
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