What are Contingent Assets?

Contingent Assets

The word contingent or contingency means “possible, but not certain to occur”. Contingent assets are those assets which may or may not become a reality for a business depending on the outcome of a future event. Existence of this kind of asset is completely dependent on the occurrence of a probable event in future. It is a potential asset but there is no surety.

An example of such asset is a court case. Only if the company wins the court case & gains from it, the contingent asset will actually be realized.

A contingent asset may be disclosed as a foot note to the balance sheet,  These are not recognized in financial statements since this may result in the recognition of income that may never be realized. Unlike contingent liabilities, contingent assets are not recorded even if it is probable and the amount of gain can be estimated.

Now, there is a catch! a contingent asset where an inflow of economic benefits is certain & sure or in other words virtually certain such as a settled lawsuit (where benefit is sure to be received) may be disclosed & recorded in the period when the change actually occurs. 

 

Example

Let us suppose that Unreal Pvt Ltd. files a case of patent violation on Real Pvt. Ltd. Now, the former can’t recognize this as a contingent asset even if it is sure to win and the amount can be estimated. Only when the lawsuit is settled and a sure amount is to be received at a specific time can this be recognized in the books of Unreal Pvt Ltd. as a Contingent Asset.

 

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