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Following a wedding in October 20X0 ten people contracted food poisoning from eating food cooked by the wedding caterer PQ. At 31 December 20X0 PQ was advised by its legal advisors that aliability was possible but not probable and the incident was disclosed as a contingent liability at that date.
As the result of developments in the case, which is still not settled, PQ was advised that it is now probable, as at 31 December 20X1, that they will be found liable and will therefore have to pay damages of unknown value.
Which of the following would indicate that in the financial statements of PQ for the year ended 31 December 20X1 this should still be recognised as a contingent liability rather than a provision?
Suggested Answer: A
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13 comments · newest first
AS
Ashleigh
12 months ago
The case being unsettled is a big factor too!
SH
Shawn
12 months ago
A present obligation exists, but they can’t estimate the damages yet.
DE
Denae
1 year ago
Wait, how can they still call it a contingent liability if it's probable?
JE
Jean
1 year ago
Totally agree, that’s why it’s still a contingent liability!
AN
Annalee
1 year ago
There’s no reliable estimate of the cost.
MA
Mammie
1 year ago
I recall that a contingent liability remains if the outcome is uncertain, so maybe it’s about the case not being settled yet, which points to D.
MA
Malissa
1 year ago
I’m not entirely sure, but I feel like if it’s probable they’ll have to pay, it might not be a contingent liability anymore. Could it be D?
AL
Alise
1 year ago
I think we practiced a similar question where the focus was on whether a reliable estimate could be made. That makes me lean towards A as well.
CH
Christiane
1 year ago
I remember we discussed how a contingent liability is recognized when there's uncertainty about the amount, so maybe A is the right choice?
DO
Dominga
1 year ago
The most serious risk has to be the project failing to meet business and user needs. That's the whole point of the project, right? If it doesn't deliver what's needed, it's a complete failure.
BR
Brendan
1 year ago
Okay, I know the index is used to access elements in an array, so option A is definitely true. I'll focus on the other options to find the ones that are not true.
ME
Melissa
1 year ago
Hmm, this seems like a tricky one. I'll need to think through the different network service tiers and how they impact data traffic costs.
SH
Shonda
1 year ago
Okay, let me think this through. The key is to limit the printer to internal Citrix users on Windows 10 only, so I'm leaning towards option D - Client OS.