Definition
Contingent Asset
A contingent asset is a possible asset arising from past events whose existence depends on an uncertain future event, disclosed but not recognised until virtually certain.
The mirror image of a contingent liability, a contingent asset might be a favourable but unresolved legal claim or insurance recovery. Under Ind AS 37, prudence dictates that it is not recognised in the accounts until the inflow is virtually certain, to avoid overstating profit.
When realisation becomes probable, a contingent asset is disclosed in the notes to accounts; only when virtually certain is it recognised. The asymmetry with contingent liabilities, which are disclosed at the 'possible' stage, reflects accounting conservatism.
Related terms
- Contingent LiabilityA contingent liability is a possible obligation that may arise depending on a future event, disclosed in the notes rather than recognised on the balance sheet.
- Provisions (Accounting)A provision is a liability of uncertain timing or amount that a company recognises when it has a present obligation likely to require an outflow of resources.
- Notes to AccountsNotes to accounts are the detailed disclosures accompanying financial statements that explain accounting policies, breakdowns and items not visible on the face of the statements.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.