Question

A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control.

A. A provision
B. A current liability
C. A contingent liability
D. A contingent asset

Answer 1

A contingent liability is a potential financial obligation that arises due to an uncertain future event that is not fully within an entity's control, and the correct answer to the student's question is C. A contingent liability.

Step-by-step explanation:

The obligation mentioned in the student's question is best described as a contingent liability. A contingent liability is a potential financial obligation that may arise depending on the occurrence or non-occurrence of a certain event or condition in the future. These events or conditions are not entirely within the control of the entity, which means the liability is contingent on something that may or may not happen. For example, a company facing a lawsuit may have to pay a settlement if the court decides against it, but whether this will happen is uncertain. Therefore, the correct answer to the question would be C. A contingent liability.