You hurt your ankle at a grocery store and take the store to court. You sue them for $10,000 and hospital bills. Even though you’re likely going to win that case…that money is contingent on the judge awarding it to you. In this case, the $10,000 is a contingent asset because it requires a future event to transpire in order for a gain to be realized.
Contingent assets aren’t recordable until that other event occurs. When companies list these assets on any documents, they typically list them with a conservative sum; the future event could not happen, or another event could impact the realized gain in the future.
However, auditors are not big fans of listing contingent assets on financial statements. It’s important that the company only do so if the event is highly probable, and to provide footnotes explaining what must occur for a realized gain to occur.
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Finance: What is Contingent Liability?4 Views
Finance allah shmoop what is contingent liability All right you
know what a liability is right It's a debt it's
a promise you've made that you need to fulfill teo
pay someone and fulfilling it can be done with cash
or ah promise of delivering inventory or after you've sold
the home to the joneses An interesting family with oddly
large foreheads you know delivering good title to the home
to them right So you're fulfilling liability of producing your
home so what's a contingent liability Well think of it
is a call option or a put option on a
security A contingent liability is a derivative of some other
underlying being like another liability Well the most common contingent
liability would be a filed lawsuit that is more than
just an ambulance chasing securities lawyer hoping to get a
quick five hundred grand to go away google might be
willing to pay three billion dollars toe by ring That
wireless doorbell company started by some weirdo contingent upon ring
properly defending its lawsuit from honeywell which claims that they
own the patents on the process while the financial outcome
of that lawsuit is a contingent liability to the company
Ring and the outcome of the joneses moving into town
well is a worldwide dominance and the enslavement of all
human I mean that's what's at stake their people But 00:01:31.39 --> [endTime] not least they keep their front lawn looking nice