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I have few questions related to contingent liability. Is it true that:
1. Contingent liability is a liability that depends upon the results of something. For example, there is an ongoing case on a company and it is required to pay the damages by the court?
2. Is it true that the double entry for the contingent liability is:
Contingent expense (debit)
Contingent liability (credit)3. Is it true that the contingent liability will be recorded as per IAS 37?
4. OR There is no double entry recorded in respect of this. Instead, a description of the event should be given to the users with an estimate of the potential financial effect?
5. A contingent liability is recorded simply as a disclosure note shown in the notes to the accounts?
Hi,
A contingent liability is where there is a possible obligation, or a possible outflow of economic benefit.
1. The court case would give rise to a contingent liability that would be disclosed in the accounts if the outcome was possible (i.e. <50% chance of it succeeding).
2. No, there is no double entry for a contingent liability as it is only ever disclosed.
3. IAS37 is the accounting standard but it is nor recorded in the financial statements, only disclosed.
4. Correct.
5. Correct
Hope that clears up all the doubts.
Thanks,
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