Probable and inestimable

Definition

Probable and inestimable refers to a contingent liability that is likely to occur but cannot be reasonably estimated. In financial accounting, such liabilities must be disclosed in the notes to the financial statements rather than recorded on the balance sheet.

5 Must Know Facts For Your Next Test

1. A probable and inestimable contingent liability must be disclosed in the notes to the financial statements.
2. These liabilities are not recorded on the balance sheet because their amount cannot be reasonably estimated.
3. Disclosure of probable and inestimable liabilities provides transparency for users of financial statements.
4. Firms need to assess regularly if these liabilities can eventually be estimated and thus recorded.
5. Examples include pending lawsuits where the outcome is likely unfavorable but the damages are uncertain.

Review Questions

Related terms

Contingent Liability:

A potential obligation that depends on a future event arising from past transactions or events.

Probable Contingency: A contingency that is likely to occur, typically with a chance of occurring greater than 50%.

Estimable Liability: A liability whose amount can be reasonably estimated and therefore must be accrued if it is also probable.