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what is a contingent liability and how would you determine the amount to record for a...

what is a contingent liability and how would you determine the amount to record for a contingent liability?

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Contingent liability - A contingent liability is a liability which may occur in the future and is dependent upon happening of a future event. It may be a liability or a loss which may occur in the future.

Examples of contingent liabilities - warranty claims, lawsuit against the company.

Contingent liability is to be recorded only when there is possible to estimate the value of liability. Further, if the estimation of value can be done then there must be 50% chance of realizing the liability. If there is no estimation of liability that can arise in future then no contingent liability is to be recorded. Therefore, to record a contingent liability there must be high probability of contingency and with it reasonable accuracy of estimation of the amount involved in liability.

ekkarill92 answered 2 years ago
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