Distinguish between accounting treatment of contingent liabilities based on the probability of these situations resulting in an actual monetary loss.

Situations:

1. Probable: This means that the future event will likely occur, and we can reasonably estimate the amount of losses. So, we need to record this liability and present it in the Balance sheet and Income statement with the amount of estimated loss.
2. Reasonably possible: The chances of happening of future event is less than probable but more than remote. So, we need to disclose the existence of contingent liability in the notes to financial statement when liability is reasonably possible.
3. Remote: The chances that the future event will take place is remote. So, there is no need to either record or present the contingent liability in notes accompanying financial statements.