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CONTINGENT ASSETS
&
CONTINGENT LIABILITIES

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)

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

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

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)

Examples
Bank Guarantee
Bill Receivable Discounted
Damages payable pending suit

Compensation under Dispute

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)

MCQs
Q.1. Present liability of uncertain amount, which can be
measured reliably by using a substantial degree of
estimation, is termed as ________.
Provision
Liability
Contingent liability
None of the above
A

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

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

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

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