Chapter 13: Question 19Q (page 691)

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

Short Answer

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Determination of current liability is a near-term debt obligation that is accurately measured, whereas a contingent liability is a liability that may or may not be contingent on the occurrence of an uncertain future event.

Step by step solution

Meaning of Contingent liability

A liability that is not likely to happen is known as contingent liability. A business is required to report such liability in order to protect itself from future losses.

Comparing and differentiating Determinable current liability and contingent liability.

BASIS	Determinable current liability	Contingent liability
Definition	Obligations that are measured exactly due for payable within a year	Liability that may occur depending upon an uncertain future event
Accountability	Under current liabilities	Disclosed as notes usually but loss/expense if any is accounted as part of prudence
Measurability	It can be measured exactly.	It may or may not be estimated since the happening of the event is uncertain.
Examples	Accounts payable, commercial paper, dividends payable	Potential Lawsuits, product warranties, pending investigations

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Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

Short Answer

Step by step solution

Meaning of Contingent liability

Comparing and differentiating Determinable current liability and contingent liability.

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