What are the contingent assets?

Banking & FinanceFinance ManagementGrowth & Empowerment

Contingent asset is that asset for a company, which has future economic benefit. This means that the asset may arise in future based on contingent events, which the company has no control over.

Company discloses this type of asset, when an income flow is probable. Reasons for not recognizing this as an asset is its uncertain event and conservatism.

Examples of contingent assets are as follows −

  • Gain from lawsuit.
  • Litigations.
  • Legal disputes etc.

Accounting treatment for contingent assets are governed by International accounting standard 37. These are not recognized, but disclosed, when it has inflow benefits. Asset is not considered as contingent, if the asset is recognized in a statement of financial position.

The accounting treatment of contingent asset is as follows −

For example, Lawsuit − Apple and Samsung have legal patent infringement. They started in 2011 when Samsung copied iPhone design and software features.

Consider following table for contingent asset −

A contracted estimated a project cost
$50million
Actual complete cost for a subcontractor
$60million
Delay in cost overrun
$10million

In this case, the sub-contractor files litigation against the contract for $10million. In this case, the contingent asset will be $10million. The contractor cannot recognise this asset in their audit reports, till he clears the due amount to the sub-contractor.

Once the due is paid to the sub-contractor, then only he gets the asset and records the same in the balance sheet.

raja
Updated on 13-May-2022 07:20:57

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