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Contingent assets:
If virtually certain (i.e. more than 95% likely) then it is not a contingent asset and should be recognised.Please correct me the notes say that if virtually certain we should not recognise as contingent asset? Then what should we show it as? Please explain.
A receivable as normal!!!
Given we are virtually certain to receive the money then it is a receivable in the same way as all receivables.
Sorry I am little confused here. Please correct my few points…
1) Is there a difference when u say recognize it as receiveable instead of contingent asset?
2) When the court case has ended in our favour we record it as receivable whereas the contingent asset would be when the court case has not started yet?
3) IF contingent asset is virtually certain then we record it as receivable in normal way as current assets. BUT if it is probable then we disclose it as contingent asset in current assets?
4) IF contingent liability is probable then we record it as contingent liability in liability section in SOFP. BUT in case of possible we disclose it as provision.
5) There is no case when contingent liability is virtually certain (correct?)
Thanks 🙂
1. Yes, as explained in my free lectures and notes, receivables are shown as current assets in the SOFP. Contingent assets are not shown in the SOFP but are disclosed by way of note if they are ‘probable’.
2. It doesn’t have to be a court case. It is contingent if it depends on something else happening (which could be a court case). Once the court case (if that is the case) has happened then either we are owed money (in which case it is a receivable) or we are not owed money (in which case it is irrelevant).
3. That is not what I say in my lectures and it is not what it printed in our notes. See page 26 of our lecture notes and the lecture that goes with this chapter.
4. There is no such thing as a contingent liability section in the SOFP. It it is probable then it is shown as a liability in the SOFP.
5 If it is virtually certain then it falls into the category of probable and is recognised as a liability in the SOFP.
Thanks for your previous answer. That was helpful 🙂
Could you please comment on below too.
1) You said in lecture that (probable / possible / remote) is relevant when the accidents occur after the year-end but how it does reconcile with IAS 10 events after the reporting period?
2) We record provision when something happened before the year-end according to IAS 37 but if something happened after year-end then IAS 10 events after the reporting period will apply?
3) Could you please explain the meaning of probable in accounting?
1. If the even occurred after the year the year end then it does not appear in the SOFP but is disclosed in the notes (unless the probability is remote) – this times in which IAS 10.. If it occurred before the year end then it either appears in the SOFP or is disclosed in the notes, depending on the likelihood.
2. Yes.
3. Probable means likely to happen. In the context of contingent liabilities etc it means that the chances of it happening are more than 50%.
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