Question

How contingent Assets are generated? Give two examples of contingent assets in detail.

Answer 1

Contingent Assets- The contingent assets are those assets which are likely to become an asset for the company in future but the company has no control on it becoming an asset.

Contingent assets are generated because of the uncertainty related to the results of an event i.e. what will be the outcome of the event determines the generation of the contingent assets. Since they are uncertain in nature so they are not reported in the Balance Sheet as an asset instead it is shown in the notes which are mentioned below the Financial Statements.

Examples of contingent assets:

(1) A lawsuit filed by the company on third party to receive compensation for infringement of the copyright of the company by the third party. If the chances of winning case is probable for the company then the company will report it as a contingent assets.

(2) A possible refund from the government in relation to the tax disputes of the company with the government. A company may receive certain amount as tax refund if it wins the case against the government. If the chances of receiving the tax refund arising out of the tax disputes are high then this will be treated as a contingent asset and thus recorded in the notes prepared after the financial statements.

In case of any doubt please comment below.

Thank you. Please upvote it......