Question

What are contingent liabilities, and how do they differ from other short- or long-term liabilities? Which types of contingent liabilities need to be disclosed, and where do they appear in the financial statements. Give examples of all three types of contingencies.

Answer 1

Answer:-

Contingent liabilities are the liabilities that may occur depending on the outcome of future event which is uncertain.Those liabilities may or may not arise depending on the outcome of specific event.Short term liabilities are liabilities that are required to be paid within a year.Long term liabilities are liabilities payable for a period of more than one year.Contingent liabilities are required to be paid on the happening of the event that triggers the contingency.Contingent liabilities may or may not be required to be paid but short term or long term liabilities are to be paid.Contingent liabilities are recorded if the amount can be estimated and contingency is likely and if both the conditions are not met,they are to be disclosed as a footnote in the financials.Three types of contingencies are "probable"(likely to occur and can be estimated) for example product warranties which can be estimated based on past experiences and are more likely to be paid,"possible" for example legal claims which may or may not be required to be paid depending on the outcome of the case and "remote"(aren't likely) Destruction by earthquake,fire or flood.