Examples of Contingent And Unrecognized Liabilities
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Example you are considering purchasing a company - assets, liabilities, warts, and all. You are aware that sometimes liabilities do not always show up on the balance sheet. can you discuss five examples of liabilities that may not be explicitly recognized on the balance sheet, can you explain why they are liabilities.
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Solution Summary
This solution provides examples of liabilities which are not reported on the face of the balance sheet.
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In order to recognize a liability on the Balance Sheet (as opposed to merely disclosing its presence in the notes to the financial statements), Financial Accounting Standards Board Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements-a replacement of FASB Concepts Statement No. 3 (incorporating an amendment of FASB Concepts Statement No. 2), (Issue Date 12/85) requires that (a) the obligation require a probable sacrifice of future resources, (b) the firm has little or no discretion to avoid the transfer, and (c) the event giving rise to the liability has already occurred. Likewise, Financial Accounting Standards Board Statement No.5, Accounting for ...
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