Describe Contingent Liabilities

Question

Write a brief note on the word ‘Contingent Liabilities’?

Answer 1

Contingent liability is an obligation, relating to a precedent transaction or other event or situation, which might happen in consequence, as a future event now deemed possible however not probable. Therefore these liabilities as might happen in future are termed as contingent liabilities. For illustration: assurance to a bank for loan advanced to a third party, possible penalties, penalties and fines payable to the income tax authorities or government etc. The prospect losses from natural calamities are not contingent liabilities. They are not recorded in books of account. They do not shown on the liabilities side of the balance sheet. They are shown by mode of a footnote at the bottom of the balance sheet.