Contingent Liability

A contingent liability can be defined as the loss that is not calculated at present but may occur at some point in future. The contingent liability comes in to the view when various uncertainties associated with assets and liabilities are resolved with the passage of time. Contingent liability is not given the status of current or long term liability unlA contingent liability can be defined as the loss that is not calculated at present but may occur at some point in future. The contingent liability comes in to the view when various uncertainties associated with assets and liabilities are resolved with the passage of time. Contingent liability is not given the status of current or long term liability unless or until it is confirmed as a liability at the firm’s end. There are different procedures in accounting to recognize and record a contingent liability. A liability should be tagged as contingent liability if the possibility of occurring probable loss is greater and the company can estimate the amount of loss that is going to be occurred. Sometimes the company cannot estimate the exact amount and just find out a range of estimated amount. In such a case the most probable or the lowest amount in the range can be tagged as contingent liability. Contingent liability is disclosed in the financial statements only when the existence of liability is reasonably possible but not probable. If in any case the possibility of occurrence of liability is remote it must not be recorded in the financial statements. There are a number of different examples of contingent liabilities such as a lawsuit that may arise due to delivery of defected product. Another example may be the warranty or claim of the product within the time span of warranty expiration. Accounting allows the companies to deal with contingent liabilities in a liberal manner as there is no need to record a contingent liability until or unless the risk of loss is exceptionally high. In order to identify contingent liability one should review the disclosures associated with financial statements of the company. ess or until it is confirmed as a liability at the firm’s end. There are different procedures in accounting to recognize and record a contingent liability. A liability should be tagged as contingent liability if the possibility of occurring probable loss is greater and the company can estimate the amount of loss that is going to be occurred. Sometimes the company cannot estimate the exact amount and just find out a range of estimated amount. In such a case the most probable or the lowest amount in the range can be tagged as contingent liability. Contingent liability is disclosed in the financial statements only when the existence of liability is reasonably possible but not probable. If in any case the possibility of occurrence of liability is remote it must not be recorded in the financial statements. There are a number of different examples of contingent liabilities such as a lawsuit that may arise due to delivery of defected product. Another example may be the warranty or claim of the product within the time span of warranty expiration. Accounting allows the companies to deal with contingent liabilities in a liberal manner as there is no need to record a contingent liability until or unless the risk of loss is exceptionally high. In order to identify contingent liability one should review the disclosures associated with financial statements of the company.

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