Contingent Liabilities

Question

Explain the term Contingent Liabilities?

Answer 1

Contingent liabilities are such liabilities that are not liabilities as of at present.

In future they might become liabilities. They are termed as contingent since they are not real.

Illustration: A bank exhibits all bank guarantees which has issued as contingent liabilities in its balance sheet. Reason is that those bank guarantees might be invoked and might really become liability in some unidentified date in the future.

Contingent liabilities are illustrated in annual report and balance sheet. There is a solid reason for similar. Assume any contingent liability becomes an actual liability in future then the stake holders in the company must not acquire surprised by unexpected expense by the company.

Investors require to be informed of probable liabilities in the future.