Contingent losses are generally recognized when they are ________.
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A. B. C. D.B
Contingent losses are generally recognized when they are both probable and measurable.
In financial reporting, contingent losses refer to potential losses that may occur in the future due to uncertain events. These losses are not certain at the reporting date but have the possibility of occurring based on certain conditions or events. The recognition of contingent losses depends on specific criteria.
According to the question, the options provided are:
A. Measurable B. Probable and measurable C. Measurable and realized D. Probable
Let's go through each option and its implications:
A. Measurable: Contingent losses can be recognized when they are measurable. This means that the potential loss can be reasonably estimated or quantified. In other words, there should be sufficient information available to reasonably determine the amount of the potential loss. However, mere measurability alone may not be sufficient for recognition. Other criteria need to be considered as well.
B. Probable and measurable: This option suggests that contingent losses should be both probable and measurable for recognition. "Probable" means that it is more likely than not that the loss will occur. In other words, there should be a greater than 50% chance of the loss materializing. Additionally, the potential loss should also be measurable, as discussed in option A.
C. Measurable and realized: This option suggests that contingent losses should be both measurable and already realized. However, this is not accurate. Contingent losses are recognized before they are realized or actually incurred. They are recognized based on the likelihood and measurability of the potential loss, not on whether the loss has already occurred.
D. Probable: This option suggests that contingent losses should be probable for recognition. As discussed earlier, "probable" means that it is more likely than not that the loss will occur. This is a key criterion for the recognition of contingent losses. If it is determined that the potential loss is probable, it may be recognized in the financial statements, provided that it is also measurable.
To summarize, the correct answer is B. Probable and measurable. Contingent losses are generally recognized when they are both probable (greater than 50% chance of occurrence) and measurable (the amount can be reasonably estimated or quantified).