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How do we treat the contingent liability in balance sheet?
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According to the full disclosure principle, all significant, relevant facts related to the financial performance and fundamentals of a company should be disclosed in the financial statements, thus Contingent Liabilities and commitments (to the extent not provided for) shall be given under Notes (i) Contingent Liabilities shall be classified as: (a) Claims against the company not acknowledged as debt; (b) Guarantees excluding financial guarantees; and (c) Other money for which the company is contingently liable (ii) Commitments shall be classified as: (a) Estimated amount of contracts remaining to be executed on capital account and not provided for; (b) Uncalled liability on shares and other investments partly paid; (c) Other commitments (specify nature).
Sudha Reddy
According to the full disclosure principle, all significant, relevant facts related to the financial performance and fundamentals of a company should be disclosed in the financial statements, thus Contingent Liabilities and commitments (to the extent not provided for) shall be given under Notes (i) Contingent Liabilities shall be classified as: (a) Claims against the company not acknowledged as debt; (b) Guarantees excluding financial guarantees; and (c) Other money for which the company is contingently liable (ii) Commitments shall be classified as: (a) Estimated amount of contracts remaining to be executed on capital account and not provided for; (b) Uncalled liability on shares and other investments partly paid; (c) Other commitments (specify nature).
Mam if contingent liability had become real one and if co. is settling it then what is the journal entry to be passed
Thread Starter
Sri kanaga VarshiniMam if contingent liability had become real one and if co. is settling it then what is the journal entry to be passed
Debit Expense A/c and credit the liability A/c
Sudha Reddy
Debit Expense A/c and credit the liability A/c
Mam but we have not considered this contingent liability as liablity yet know mam since it is outside balance sheet
Thread Starter
Sri kanaga VarshiniMam but we have not considered this contingent liability as liablity yet know mam since it is outside balance sheet
Yes, thats why when it becomes real, immediately create the liability... it will be cleared as and when paid.
Sudha Reddy
Yes, thats why when it becomes real, immediately create the liability... it will be cleared as and when paid.
Ok mam understood clearly thank you