Contingencies in financial statements

Discussion Questions
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Discussion Questions
Those events that might or might not take place in the future are understood as contingencies. A contingent loss is a possible reduction in the fiscal holdings of the business, whereas a contingency gain is a possible increase to the fiscal holdings of the business. Contingencies are reported on financial statements as liabilities if it is probable that they would incur a loss and their sums can be realistically estimated. Gain contingencies are usually reported on the income statement as soon as they are earned or realized. A loss contingency will not be reported in the event that it cannot be recognized because of improbability or/and the sum of the loss cannot be dependably estimated or measured (Lister, 2013). A loss contingency requires the amount of the loss to be probable and that the sum of the loss should be reasonably estimable.
It is better to use Long Term Debt when the businessperson wants to buy major assets such as building or equipment but lacks the adequate financial capital. Long Term Debt are used in purchasing major assets and the assets usually act as collateral on the loan. Long Term Debts often take over 12 months to repay, typically 20 – 30 years. It is better to have capital when the businessperson wants to buy assets that do not require substantial amount of money (Kennon, 2011).
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