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Contingent Assets & Liabilities

Here we have discussed the Future estimates made by business, the meaning of future probable inflow of benefits i.e. Contingent Assets & future probable obligations i.e. Contingent liabilities. The Disclosure in Accounting of Contingencies (as per Full Disclosure Concept) has been discussed. The difference between Provisions & Contingent liabilities is not to be ignored.

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Contingent Assets & Liabilities

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  1. Takshila LearningLearn anything anywhere • www.takshilalearning.com • Call: +91-8800999280

  2. CONTINGENT ASSETS & CONTINGENT LIABILITIES

  3. Contingency Any unplanned/unexpected/future event A future event, the happening/ non happening of which depends on the happening/non happening of any other future event,” ( Its not a Present event)

  4. Examples Rain on day after tomorrow( depends on tomorrow's weather) Payment of compensation depends on judgment of the suit. Receipt of award if the target is achieved

  5. Contingent Asset A possible(future) asset that arises from past events Confirmed only by the occurrence or non- occurrence of one or more uncertain future events Should not be recognized in financial statements (uncertain/not a present asset)- [Prudence Concept] Should be shown in “Notes to Accounts/Footnote to balance sheet”

  6. Contingent Liabilities A possible/future obligation that arises from past events will be confirmed in future Not the present liabilities(should not be the part of financial statements) Should be shown in the Notes to Accounts/ Footnotes to Balance Sheet. (Full Disclosure Concept)

  7. Examples Bank Guarantee Bill Receivable Discounted Damages payable pending suit Compensation under Dispute

  8. Provision V/s Contingent Liability Provision- Present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation. (Recognition of a possible liability (in financial Statements) Contingent liability -A possible obligation that may or may not crystallise (unknown /uncertain /undetermined Liability with uncertain amount) (Less Probable obligation shown in Notes to Accounts)

  9. MCQs Q.1. Present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation, is termed as ________.

  10. MCQs Q.2. If a contingent liability becomes probable, it has to be

  11. MCQs Q.3. Which of the following is not a contingent liability?

  12. MCQs Q.4. Contingent asset usually arises from unplanned or unexpected events that give rise to

  13. MCQs Q.5. In the financial statement, contingent liability is

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