Question

Red Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is probable, a loss contingency should be:

a. Disclosed but not accued as a liability
b. Disclosed and accued as a liability
c. Accued as a liability but not disclosed
d. Neither accrued as liability nor disclosed

Answer 1

A. Disclosed and accrued as a liability

Explanation: Expropriation is a term used to describe the various processes and steps taken by Government in order to take ownership of private businesses with the aim of using it for the general good of the public.

A loss contingency is the charging of the cost of a probable future negative outcome to the expenses of a company.

WHEN EXPROPRIATION HAS THE PROBABILITY OF TAKING PLACE,A LOSS CONTINGENCY SHOULD BE DISCLOSED AND ACCRUED AS LIABILITY.