Question

What are the two FASB required conditions for a contingent liability to be recognized?

a) Probable and reasonably estimable
b) Speculative and possible
c) Improbable and remote
d) Certain and predictable

Answer 1

A contingent liability must be probable and reasonably estimable in order to be recognized.

Step-by-step explanation:

According to the Financial Accounting Standards Board (FASB), there are two conditions that must be met for a contingent liability to be recognized:

1. Probable: The likelihood of the contingency occurring is high or reasonably possible.
2. Reasonably estimable: The amount of the liability can be reasonably estimated.

For example, if a company is facing a lawsuit and it is probable that they will have to pay damages, and the amount of damages can be reasonably estimated, then the company would recognize the contingent liability on their financial statements.