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1) Liability likely to arise in future on happening of certain events. |
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Answer» A contingent liability is a liability that may or may not happen. This means there is uncertainty about recording such a liability in the financial accounts. This is because the happening or not happening of a contingent liability is not in the hands of the future. There are two ways contingent liability can be defined. One method involves a past event and the other one a future event. Let us take a look at the definition of a contingent liability. It is an obligation that may possibly arise from the occurrence or the non-occurrence of a certain future event. The company itself has no control over the said event. An obligation may arise for the company from past events also. This happens when it is not likely that an outflow of funds will be required to discharge the contingent liabilities. No reliable estimate can be made for the legal obligation. There is no prior precedence to enable the company to make such an estimate. |
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