Contingent Assets and Contingent Liabilities Interview Questions & Answers

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A contingent asset is a possible asset that may arise because of a gain that is contingent on future events that are not under an entity's control. According to the accounting standards, a business does not recognize a contingent asset even if the associated contingent gain is probable. . Contingent assets may arise due to the economic value being unknown. A contingent liability is a potential obligation that may be incurred depending on the outcome of a future event. A contingent liability is one where the outcome of an existing situation is uncertain, and this uncertainty will be resolved by a future event. Contingent liabilities and contingent assets are not recognised as liabilities or assets. However, a contingent liability should be disclosed if the possibility of an outflow of economic benefit to settle the obligation is more than remote. A contingent asset should be disclosed if an inflow of economic benefit is probable.