Contingent asset is not recognized in the financial statements on the basis of ______ accounting concept:a)Prudenceb)Materialityc)Substance over formd)Going concernCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Explanation:

Contingent assets are potential assets that may arise in the future depending on the occurrence or non-occurrence of one or more uncertain events. These assets are not recognized in the financial statements because of the prudence concept.

Prudence concept:

The prudence concept suggests that while preparing financial statements, the accountant should be cautious and not overstate assets or income and understate liabilities or expenses. This means that when there is uncertainty about the existence or amount of an asset, it should not be recognized in the financial statements.

Reason for not recognizing contingent assets:

Contingent assets are not recognized in the financial statements because there is a high degree of uncertainty associated with them. These assets may or may not materialize in the future, depending on the occurrence or non-occurrence of some future event. Therefore, recognizing them in the financial statements would be imprudent because it would overstate assets and income, which could mislead the users of financial statements.

Conclusion:

In conclusion, contingent assets are not recognized in the financial statements on the basis of the prudence concept because of the high degree of uncertainty associated with them. By not recognizing them, financial statements provide a more cautious and realistic view of the financial position of the entity.

Answer

Option A is correct because we record all anticipited contingent liabilities but not anticipated contingent assets

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Contingent asset is not recognized in the financial statements on the basis of ______ accounting concept

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