CFA Practice Question

CFA Practice Question

When reporting contingencies
A. a loss that is probable but not estimable must be disclosed with a notation that the amount of the loss cannot be estimated.
B. disclosure of a loss contingency must include a dollar estimate of the loss.
C. guarantees of others' indebtedness are reported as a loss contingency only if the loss is considered imminent or highly probable.
Explanation: Contingent losses should be accrued if both probable and reasonably estimable. In this case, the contingent loss is not estimable and, therefore should only be disclosed in the notes since it is probable.

User Contributed Comments 5

User Comment
ahan Why is B wrong?
ohmms Because it does not HAVE to include dollar estimate if it is not estimable.
ontrack but the question does no say the loss is not estimable. only the 1st option says it is not estimable
hubmens Why is C wrong? Because its not been stated as estimable? But if the company is guaranteeing a debt, it obviously knows the amount involved. Somebody please explain!
iambroke hubmens.....not in c it sez "highly probable".....you should report it when probable....ie more than 50% certain.
You need to log in first to add your comment.