Contingent Assets & Liabilities

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• CONTINGENT ASSETS
• CONTINGENT LIABILITIES

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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)

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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

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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

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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)

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Examples

• Bank Guarantee
• Bill Receivable Discounted
• Damages payable pending suit
• Compensation under Dispute

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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)

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MCQs

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

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MCQs

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

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MCQs

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

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MCQs

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

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MCQs

• Q.5. In the financial statement, contingent
  liability is