“A contingent asset is a possible asset that arises from past events the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the enterprise.”

Contingent assets are not recognized in financial statements since this may result in the recognition of income that may never be realised. It is usually disclosed in the report of the approving authority where an inflow of economic benefits is probable. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate

“A contingent liability is a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise. It is a present obligation that arises from past events but ¡s not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be determined”.
Examples of a contingent liability would be an outstanding lawsuit, bank guarantee etc. Suppose, if a company is sued by a former employee for ₹ 5,OO,OOO for age discrimination, the company will have a liability if it is found guilty. However, if the company is not found guilty, the company will not have an actual liability. Such a liability is known as a contingent liability.

 

Leave a Reply

Your email address will not be published. Required fields are marked *