Contingent Asset Accounting

Contingent Asset Accounting

In this article we would explain the contingent asset accounting or accounting treatment of contingent asset.  The contingent asset is a possible future asset which will be confirmed in future upon occurrence of non occurrence of an event.

Recognition of Contingent Asset

The contingent asset is only recognized, when it is certain, otherwise contingent asset is only disclosed in the financial statements. When the chances of possible asset are remote, then the asset neither recognized nor disclosed in the financial statements. Thus recognition can be summarized as under

a)    Certain contingent assets are recognized.

b)    Possible contingent are disclosed.

c)    Remote contingent asset are not treated in financial statements.

Example of Contingent Asset

A possible damages claim from a supplier is an example of contingent asset. When there is 100% surety that claim would be received, and then it is recognized. When there is probable that claim would be received, then it is disclosed. When there is no chance of receiving the claim, then there is no accounting treatment.

Characteristics of Contingent Asset

Some important characteristics of contingent assets are listed below

a)    It is a future possible asset.

b)    It has different accounting treatment.