Problem 4-7 Multiple choice (PAS 37)

1. Which of the following statements is incorrect concerning a contingent liability?

a. A contingent liability is both probable and measurable

b. An entity shall not recognize a contingent liability in the financial statements
c. A contingent liability is disclosed only
d. If a contingent liability is remote, no disclosure is required

2. A contingent liability is a

I. Possible obligation that arises from past event and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more future
uncertain events not wholly within the control of the entity

II. Present obligation that arises from past event and it is not probavle that an
outflow of resources embodying economic benefits will be required to settle the
obligation or the amount of the obligation cannot be measured reliably

a. I only
b. II only
c. Both I and II
d. Neither I nor II

3. Which of the following statements in relation to a contingent liability is true?

I. An obligation as a result of the entity creating a valid expectation that it will

discharge its responsibilities is a contingent liability

II. A present obligation that arises from past event but cannot be reliably
measured is a contingent liability

a. I only
b. II only
c. Both I and II
d. Neither I nor II

4. It is possible asset that arises from past event and whose existence will be
confirmed occurrence or non-occurrence of one more uncertain future events not
wholly within the control of the entity

a. Contingent asset
 b. Contingent gain
c. Possible asset
d. Asset in suspense

5. Which of the following statement is incorrect concerning a contingent asset?

a. A contingent asset is recognized because this may result to recognition of

income that may never be realized.
b. When the realization of income is virtually certain, the related asset is no longer
a contingent asset and its recognition is appropriate.
c. A contingent asset is disclosed where an inflow of economic benefit is probable.
d. A contingent asset is disclosed where an inflow of economic benefit is possible
or remote

ANSWERS:
1. A
2. A
3. B
4. A
5. D