Contingent Liabilities

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:25AM in AAT student discussion
Hi I am really struggling here. :( Can anyone please explain what contingent liabilties are and how they affect the accounts of a company? Thanks

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Contingent Liabilities

    A contingent liability is something that is a liability that is possibly going to mean the reporting entity will have to pay a liability BUT it is not probable. If the liability is probable this generally means it is more than 50% likely that the entity will have to pay the liability and therefore a provision will be needed.

    For example, if a construction company is sued by a customer for whatever reason and their solicitors say that the construction company might be found liable this is what a contingent liability means. If, on the other hand, the solicitor says it is likely they will be found liable then this means a provision has to be made

    Contingent liabilities are only shown as notes to the financial statements they cannot be incorporated into the primary statements as this is what a provision does.

    Hope that clarifies it for you.

    Regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Contingent Liabilities

    Thanks for your reply :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Contingent Liabilities

    For your reference provisions contingents etc are governed by FRS 12 and IAS 37.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Contingent Liabilities

    If you want a summary of each IAS and IFRS, I have found the following website useful:

    [url]:http://www.iasplus.com[/url]

    Best of luck!

    Andrew Harrington
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Contingent Liabilities

    Sorry. I'll try that link again...

    http://www.iasplus.com

    Andrew Harrington

Categories

Privacy Policy