Contingent liabilities that are remote (less than 20%) should be ignored.

• A. Recognise as a provision.
• B. Disclose in notes.
• C. Ignore.
• D. Recognise as revenue.

Answer: (C)

The key idea is how to treat contingent liabilities based on their likelihood of an outflow of resources. If the possibility of the outflow is remote (as in less than 20%), there is no obligation that needs to be recognized or disclosed in the financial statements. The standard allows you to ignore such remote contingencies, since the chance of an outflow is too small to warrant accounting treatment.

So there’s no provision to recognize, no revenue to record, and no need to disclose in notes for something deemed remote. Only when the likelihood is not remote would you consider disclosure (if not probable) or recognizing a provision (if probable).