In accounting for a contingent liability, if the likelihood of the obligation is probable but the amount cannot be estimated, a company must:.a. recognize the liability and report it on the balance sheet. b. do nothing.
c. not recognize or disclose the liability until it is certain and the exact amount is known.
d. provide disclosure in the footnotes to the financial statements.

During an unpredictable event, the coverage for the damage to a third person in which the insured party is liable is a contingent liability. Examples are goods warranties, lawsuits etc.

The correct answer is:

Option d. provide disclosure in the footnotes to the financial statements.

This can be explained as:

Therefore, the amount is disclosed in the footnote.

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d. provide disclosure in the footnotes to the financial statements.

Explanation:

A contingent liability is an obligation that a company might owe in future depending on the outcome of an event such as a law suit.

To record a contingent liability in the books, two conditions must be satisfied;

If these two conditions are not satisfied then the contingent liability may simply be disclosed as a footnote in the financial statement. The amount here is not estimable so can be disclosed as a footnote.

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