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Contingent liability

deepthi Contributing Member - Member Since: Mar 2006
Subject - Contingent liability
What is contingent liability?
Manjunath.T Contributing Member - Member Since: Apr 2007
Subject - Re: answer this please
Hi Depthi

contingent liability is defined as an obligation relating to a past transaction or event that may be payable in the future.
The distinction between a real liability and a contingent liability depends on the certainty of the payment to be made. A real liability exists when it is probable that the payment will be made. A contingent liability exists when it is only possible that the payment will be made

Regards

Manju
deepthi Contributing Member - Member Since: Mar 2006
Subject - Re: answer this please
Thank you very much
Can u please tell me in simple words that i can tell in interviews


with regards
Deepthi
Manjunath.T Contributing Member - Member Since: Apr 2007
Subject - Re: answer this please
Hi

In simple words

expense relates to present but payment will be made in futre.

that's it

Regards

Manju
sonalir - Member Since: Aug 2006
Subject - Re: answer this please
Hi,

Can u give some examples of contingent liability

As far as i understood contigent liability is the expenses where payment is to be made in future but payment for such expense may or may not have to be made in future right!!!!

Let me know if i understood it right and also give some examples to understand it better
Manjunath.T Contributing Member - Member Since: Apr 2007
Subject - Re: answer this please
Hi Sonarana

yes u r right ?

The best example of a contingent liability is a product warranty. If a company promised to replace a defective unit at no cost to the customer within one year of purchase, the company will have an actual liability only if units are defective. If the company is certain that no units will be returned as defective, the company will have no liability and no warranty expense.

Regards

Manju
deepakkhandelwal111 - Member Since: Apr 2007
Subject - Re: answer this please
hi
compensation is a example of contingent liability
sonalir - Member Since: Aug 2006
Subject - Re: answer this please
Thanks Manju and Deepak

Regards,

Sonali
ramargha Contributing Member - Member Since: Jan 2007
Subject - Re: Contingent liability
Dear Deepthi,

C.L. is a liability the payment of which will arise in future.
For example say the guarantee given to bank in case of default by co.. or any case say Sales Tax case is pending before the court, the payment of which depends on the default by Co. or outcome of court verdict respectively.
C.L. is not included in B.Sheet. & it is always shown by note.
For further reference , refer any audit book.

Regards
Ram

 


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