The document discusses contingent assets and liabilities, explaining that they pertain to future events that are uncertain and depend on the occurrence or non-occurrence of other events. Contingent assets should not be recognized in financial statements but rather disclosed in notes, while contingent liabilities are possible obligations arising from past events that are also not recognized directly in financial documents. It includes examples of provisions, liabilities, and relevant questions regarding their treatment in financial reporting.

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2. CONTINGENT ASSETS
&
CONTINGENT LIABILITIES

3. Any unplanned/unexpected/future event
A future event, the happening/ non happening
of which depends on the happening/non
happening of any other future event,”
( Its not a Present event)

4. Rain on day after tomorrow( depends on
tomorrow's weather)
Payment of compensation depends on judgment of
the suit.
Receipt of award if the target is achieved

5. A possible(future) asset that arises from past events
Confirmed only by the occurrence or non- occurrence of one
or more uncertain future events
Should not be recognized in financial statements
(uncertain/not a present asset)- [Prudence Concept]
Should be shown in “Notes to Accounts/Footnote to
balance sheet”

6. A possible/future obligation that arises from
past events will be confirmed in future
Not the present liabilities(should not be the
part of financial statements)
Should be shown in the Notes to Accounts/
Footnotes to Balance Sheet.
(Full Disclosure Concept)

7. Bank Guarantee
Bill Receivable Discounted
Damages payable pending suit
Compensation under Dispute

8. Provision- Present liability of uncertain amount, which
can be measured reliably by using a substantial degree
of estimation.
(Recognition of a possible liability (in financial
Statements)
Contingent liability -A possible obligation that may or
may not crystallise (unknown /uncertain
/undetermined Liability with uncertain amount)
(Less Probable obligation shown in Notes to Accounts)

9. Q.1. Present liability of uncertain amount, which can be
measured reliably by using a substantial degree of
estimation, is termed as ________.
Provision
Liability
Contingent liability
None of the above
A

10. Q.2. If a contingent liability becomes probable, it has to be
Shown in notes on accounts
Provided in the books of accounts
Ignored and no entry will be passed
Shown in director’s report
B

11. Q.3. Which of the following is not a contingent liability?
Claim against enterprises not acknowledged as debt
Guarantee given in respect of third parties
Liability in respect of bills discounted
Penalty imposed by excise officer for violation of provisions of Central Excise Act
D

12. Q.4. Contingent asset usually arises from unplanned or
unexpected events that give rise to
The possibility of an inflow of economic benefits to the business entity.
The Possibility of an outflow of economic benefits to the business entity.
Either (a) or (b)
None of the above
A

13. Q.5. In the financial statement, contingent liability is
Recognized .
The Adjusted .
Not recognized
None of these
A