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CPT Section A Fundamentals Of Accounting Chapter 2 Unit 7 
CA.V.K.Jain 
   
Page 2


CPT Section A Fundamentals Of Accounting Chapter 2 Unit 7 
CA.V.K.Jain 
   
After studying this you will be able to: 
Understand – “contingent assets” and “contingent 
liabilities” 
Distinguish “contingent liabilities” with “liabilities” and 
“ provisions” 
Page 3


CPT Section A Fundamentals Of Accounting Chapter 2 Unit 7 
CA.V.K.Jain 
   
After studying this you will be able to: 
Understand – “contingent assets” and “contingent 
liabilities” 
Distinguish “contingent liabilities” with “liabilities” and 
“ provisions” 
Possible assets arises from past events.  
Their existence will be confirmed only after occurrence or non occurrence of 
some events. 
The events are uncertain and not within the control of enterprise. 
It usually arises from unplanned or unexpected events that give rise to 
possibility of an inflow of economic benefits. 
For example a claim lodged against a party through legal process and verdict 
of which is still awaited. 
Where outcome is uncertain, is a contingent asset. 
Page 4


CPT Section A Fundamentals Of Accounting Chapter 2 Unit 7 
CA.V.K.Jain 
   
After studying this you will be able to: 
Understand – “contingent assets” and “contingent 
liabilities” 
Distinguish “contingent liabilities” with “liabilities” and 
“ provisions” 
Possible assets arises from past events.  
Their existence will be confirmed only after occurrence or non occurrence of 
some events. 
The events are uncertain and not within the control of enterprise. 
It usually arises from unplanned or unexpected events that give rise to 
possibility of an inflow of economic benefits. 
For example a claim lodged against a party through legal process and verdict 
of which is still awaited. 
Where outcome is uncertain, is a contingent asset. 
No recognition in Financial Statements -  Prudence / Conservative Principle.  
No disclosure of Contingent Assets in Financial Statements. 
Usually disclosed in report of approving authority ,if inflow of economic benefit is 
probable. 
When realisation is virtually certain, then no longer remains as Contingent Asset.  
Assets and incomes are recognised in Financial Statements in the year which the 
change occurs.  
Usually arises from unplanned or unexpected events. 
Page 5


CPT Section A Fundamentals Of Accounting Chapter 2 Unit 7 
CA.V.K.Jain 
   
After studying this you will be able to: 
Understand – “contingent assets” and “contingent 
liabilities” 
Distinguish “contingent liabilities” with “liabilities” and 
“ provisions” 
Possible assets arises from past events.  
Their existence will be confirmed only after occurrence or non occurrence of 
some events. 
The events are uncertain and not within the control of enterprise. 
It usually arises from unplanned or unexpected events that give rise to 
possibility of an inflow of economic benefits. 
For example a claim lodged against a party through legal process and verdict 
of which is still awaited. 
Where outcome is uncertain, is a contingent asset. 
No recognition in Financial Statements -  Prudence / Conservative Principle.  
No disclosure of Contingent Assets in Financial Statements. 
Usually disclosed in report of approving authority ,if inflow of economic benefit is 
probable. 
When realisation is virtually certain, then no longer remains as Contingent Asset.  
Assets and incomes are recognised in Financial Statements in the year which the 
change occurs.  
Usually arises from unplanned or unexpected events. 
Possible obligation arises from past events, existence of which will be confirmed only by occurrence or non-
occurrence of one or more uncertain future event not within the control of enterprise; or 
Present obligation that arises from past events but is not recognised because: 
(1) It is not probable that an outflow will be required to settle the obligation. 
(2) A reliable estimate of the amount of obligation can not be made. 
No recognition of contingent liability. 
Disclosure by way of a note  to the balance sheet. 
When recognised: if it becomes probable, a provision is recognised in Financial Statements of the period in which 
change probably occurs except in the extremely circumstances where no reliable estimate can be made. 
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FAQs on PPT - Contingent Assets and Liabilities - CA Foundation

1. What are contingent assets and liabilities?
Ans. Contingent assets and liabilities are potential assets and liabilities that may arise in the future depending on the occurrence or non-occurrence of uncertain events. They are not recognized in the financial statements but are disclosed in the notes to the financial statements.
2. How are contingent assets and liabilities different from actual assets and liabilities?
Ans. Contingent assets and liabilities are different from actual assets and liabilities because they are not certain and depend on future events. Actual assets and liabilities, on the other hand, are already in existence and can be reliably measured.
3. Can contingent assets be recognized in the financial statements?
Ans. Contingent assets are not recognized in the financial statements because their existence is uncertain. However, if it is virtually certain that the inflow of economic benefits will occur, then the contingent asset can be disclosed in the notes to the financial statements.
4. How are contingent liabilities recognized in the financial statements?
Ans. Contingent liabilities are recognized in the financial statements if it is probable that an outflow of economic benefits will occur and the amount can be reliably measured. If these conditions are met, the contingent liability is recognized as a provision.
5. What is the purpose of disclosing contingent assets and liabilities?
Ans. The purpose of disclosing contingent assets and liabilities is to provide users of financial statements with information about potential future assets and liabilities that may have an impact on the entity's financial position and performance. This helps users make informed decisions based on the entity's potential risks and obligations.
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