Question

A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if: The likelihood of a loss is remote. The incurrence of a loss is reasonably possible. The likelihood of a loss is probable. The incurrence of a loss is more likely than not.

Answer 1

The incurrence of a loss is reasonably possible.

Step-by-step explanation:

A contingency loss is an expense charge on the financial statements for an event that may arise in future (a lawsuit).

If the amount of contingency loss can be estimated to a reasonable extent and the likelihood of the event happening is high, such loss will be recorded in the accounting records as an expense in the current accounting year. The loss has to be material enough for it to be recognized, although materiality is relative. What is termed "material" by one firm may be "immaterial" to another.