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Contingent Liabilities - Verification and Valuation of Assets and Liabilities,
Text Transcript from Video
so what is a contingent liability a
contingent liability is also a possible
obligation from past events or it could
also be a present obligation from past
events so let us understand that we
there is an obligation contingent
liability is alive in nearly from past
events which may arise in future on the
happening or non happening of an event
let us take the same example of a
litigation if somebody if an employee if
another customer
has filed some case against us but we do
not expect to have to pay any
compensation to the employee or the
customer we think it is a remote
possibility it is very unlikely that we
would have to compensate we do not
therefore recognize such a liability but
it is possible that in that up in that
charge of suppose there is some small
bit chance that we do lose the case it
is possible that the decision goes
against us and we may have to meet the
liability in future but it is only it is
a very very unlikely it is a unlikely
obligation which might or might not
arise depending on the happening or not
happening or some future it it could
also be there is sometimes there could
be a present of litigation from past
events but the amount is absolutely not
possible for us to estimate if we cannot
estimate that amount involved
with any reasonableness then we call
that also a contingent liability a
contingent liability is not really
recognized and is not shown as a
liability in the financial statements
however disclosure is required in the
financial statements we disclose it by
way of a note we say that there could be
that is a contingent liability with
respect to so much may be also and so on
so how do we distinguish between a
liability and a contingent liability and
liability is a certainty the obligation
has a reason it is a present obligation
it is a present of litigation and we
know the amount in world certain amount
but a contingent liability it may be
possible obligation we still do not know
an obligation could arise in future on
the happening or non happening of an
event what would be the distinction
between a provision and a contingent
liability when there is a chance when
there is a present obligation due to
past events and we know the amount with
some amount we can estimate the amount
of this liability with some degree of
reason number less it is said to be a
provision a contingent liability on the
other head is only a possible obligation
it may or may not arise sometimes it is
also a present obligation but if it's a
present of negation it is called a
contingent liability because we do not
know the amount involved and we cannot
estimate with any degree of use
nobleness the amount in word or we do
not expect that there will be any
outflow of funds in order to meet this
liability so we have now a contingent
liability a program
and a liability let us try and
understand the difference between these
three with a few examples
contingent liability is also a possible
obligation from past events or it could
also be a present obligation from past
events so let us understand that we
there is an obligation contingent
liability is alive in nearly from past
events which may arise in future on the
happening or non happening of an event
let us take the same example of a
litigation if somebody if an employee if
another customer
has filed some case against us but we do
not expect to have to pay any
compensation to the employee or the
customer we think it is a remote
possibility it is very unlikely that we
would have to compensate we do not
therefore recognize such a liability but
it is possible that in that up in that
charge of suppose there is some small
bit chance that we do lose the case it
is possible that the decision goes
against us and we may have to meet the
liability in future but it is only it is
a very very unlikely it is a unlikely
obligation which might or might not
arise depending on the happening or not
happening or some future it it could
also be there is sometimes there could
be a present of litigation from past
events but the amount is absolutely not
possible for us to estimate if we cannot
estimate that amount involved
with any reasonableness then we call
that also a contingent liability a
contingent liability is not really
recognized and is not shown as a
liability in the financial statements
however disclosure is required in the
financial statements we disclose it by
way of a note we say that there could be
that is a contingent liability with
respect to so much may be also and so on
so how do we distinguish between a
liability and a contingent liability and
liability is a certainty the obligation
has a reason it is a present obligation
it is a present of litigation and we
know the amount in world certain amount
but a contingent liability it may be
possible obligation we still do not know
an obligation could arise in future on
the happening or non happening of an
event what would be the distinction
between a provision and a contingent
liability when there is a chance when
there is a present obligation due to
past events and we know the amount with
some amount we can estimate the amount
of this liability with some degree of
reason number less it is said to be a
provision a contingent liability on the
other head is only a possible obligation
it may or may not arise sometimes it is
also a present obligation but if it's a
present of negation it is called a
contingent liability because we do not
know the amount involved and we cannot
estimate with any degree of use
nobleness the amount in word or we do
not expect that there will be any
outflow of funds in order to meet this
liability so we have now a contingent
liability a program
and a liability let us try and
understand the difference between these
three with a few examples
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Apr 30, 2026 Last updated
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