A contingent liability is recorded in the financial statements if which of the following conditions are met?

• A. The liability is certain and has already occurred.
• B. It is possible, but not probable, that a future event will confirm the liability.
• C. It is probable that a future event will confirm the liability and the amount can be reasonably estimated.
• D. The liability is remote and cannot be estimated.

Answer: (C)

Verified step by step guidance

1. Understand the concept of contingent liability: A contingent liability is a potential obligation that may arise depending on the outcome of a future event. It is not recorded in the financial statements unless certain conditions are met.
2. Review the criteria for recording a contingent liability: According to accounting standards (e.g., GAAP or IFRS), a contingent liability is recorded only if it is probable that a future event will confirm the liability and the amount can be reasonably estimated.
3. Analyze the options provided in the problem: Evaluate each condition mentioned in the problem to determine whether it meets the criteria for recording a contingent liability.
4. Eliminate incorrect options: For example, liabilities that are certain and have already occurred are not contingent liabilities—they are actual liabilities. Similarly, liabilities that are possible but not probable, or remote and cannot be estimated, do not meet the criteria for recording.
5. Conclude with the correct condition: The correct condition for recording a contingent liability is that it is probable that a future event will confirm the liability and the amount can be reasonably estimated.