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Contingent Assets

Last updated date: 29th May 2024
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Several financial statements tend to follow certain accounting concepts and principles. However, there are some cases where relevant and important information is not present in some of the statements and that is due to some of these accounting principles and concepts. One of the cases might be due to the contingent assets. Here in the notes about contingent assets, we are going to figure out some of the details that students need to know about in the chapter.


What are Contingent Assets? 

A contingent asset can be considered as a potential asset for the company or any sort of economic benefit that the company can have. The main thing about the contingent asset is while it might not exist in the present times, there is a chance of it appearing in the future. There are certain cases where the occurrence of some particular events or the non-occurrence of such events led to the formation of a contingent asset. The company doesn’t have control over such events and hence the economic interest which arises from such contingent gains is something that is important. A great contingent asset example is that a company when locked in certain legal disputes gets a fairly good chance of winning or getting some entitlements to make claims. 

In these notes for contingent assets and liabilities, we are going to discuss both of these topics so that students can have an idea about the chapter and can score good marks in the examinations.


When is a Contingent Asset Not Recognized as an Asset? 

After learning the contingent assets meaning, it is now important for the students to know when the contingent asset is not recognized as an asset. Well, there might be certain conditions in accounting concepts that might lead to the absence of the contingent assets in the balance sheet. In case of uncertain events where the company is not in control of the events, there might be times when some of the contingent assets are not included. 

Also, according to the conservatism principle, some uncertain events of the future really must be recognized. However, any future incomes which are uncertain cannot be recognized in the present. So, the contingent asset will be included in the latter group for sure. This is what students get to know from the notes of provisions, contingent liabilities and contingent assets.


Disclosure of Contingent Assets 

When it comes to the contingent assets definition, students can refer to the notes. However, some other details are not mentioned clearly. With our notes, students can have all the details that they want to have in the first place. There are mentions of contingent asset recognition and so much more. With help of our notes, students can know the meaning of contingent assets in the best way. 

After understanding the meaning of contingent assets, we are going to learn about the IAS 37 Provisions Contingent Liabilities And Contingent Assets. IAS stands for International Accounting Standard and according to that, there is a specific outline of the treatment provided to contingent liabilities and contingent assets too. In a similar way Accounting Standard 29 was made by ICAI to deal with such treatment details. 

According to Accounting Standard 29, the contingent asset will not be disclosed while making the financial statements and that is due to the existence of the concept of prudence in accounting. However, when it comes to the approving authorities, they are allowed to make such mentions of the contingent liabilities and the contingent assets. However, the contingent asset disclosure can be made in the reports in the cases mentioned below. 

  • If the economic benefits are probable and are pretty much likely to happen in a sure and certain manner 

  • In case the amount or value of the asset or the benefit can easily be estimated in a reliable way

It is imperative that the contingent assets are completely monitored in a close manner. Once, this has been made certain that there will be a rise of economic benefits, these contingent assets can easily be included in all the different financial statements which are made. Then that particular asset will not be considered as a contingent asset example.


Contingent Liabilities 

There are certain cases or transactions when the final outcomes will not be known at that exact same time. Some examples of the incidents would include insurance claims, litigations, and pending disputes. So, the liabilities rising during those situations will be known as contingent liabilities.

FAQs on Contingent Assets

1. What is a Contingent Liability?

Ans: In the notes for Contingent Assets and Liabilities, the term contingent liability is used to describe some particular liabilities that might or might not occur.

2. What are Some Examples of Contingent Assets?

Ans: Some examples are legal disputes with the surety of winning, claims for damages, and much more. However, the examples of contingent assets include all of the following except unrealized profits which might come from the sale of certain investments.

3. What is an Asset a Contingent Asset?

Ans: When an asset is related to some sort of a potential gain, then it can be considered as contingent assets.