Page 176 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 12

2.3 Contingent liabilities and contingent assets

When a provision is not recognised in the financial statements because it does not
meet the criteria specified, it may still need to be disclosed as a contingent liability in
the financial statements.

IAS 37 s10 defines a contingent liability as:

(1) A possible obligation that arises from past events; or

(2) A probable obligation that arises from past events but the amount of the
obligation cannot be measured with sufficient reliability.

IAS 37 s10 defines a contingent asset as: a possible asset that rises from past
events and whose existence will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly within the
control of the entity

The accounting treatment of contingent liabilities and contingent assets may be
summarised as follows:

Probability of occurrence Contingent liabilities Contingent assets

Virtually certain >95% Provide Recognise

Probable 51% – 95% Provide Disclosure note

Possible 5% – 50% Disclosure note Ignore

Remote <5% Ignore Ignore

Illustrations and further practice

Now try Illustrations 1 and 2 and TYU 1 from Chapter 12 of the Study Text.

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