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January 30, 2008

What is a contingent asset?

A contingent asset is a potential asset associated with a contingent gain. Unlike contingent liabilities and contingent losses, contingent assets and contingent gains are not recorded in accounts, even when they are probable and the amount can be estimated.

An example of a contingent gain and contingent asset might be a lawsuit filed by Company A against Company B for infringement of Company A’s patent. If it is probable that Company A will win the lawsuit and receive an estimated amount of money, it has a contingent asset and a contingent gain. However, it will not report the asset and gain until the lawsuit is settled. (At most Company A will prepare a very carefully worded disclosure stating that it possibly could win the case.) On the other hand, Company B will need to make an entry in its accounts if the loss contingency is probable and the amount can be estimated. If one of those are missing, Company B will have to disclose the loss contingency in the notes to its financial statements.

To learn more about contingencies, see Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, at www.FASB.org/st.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.



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Comments

15 Responses to “What is a contingent asset?”

  1. mallikarjuna(Tyson) on February 7th, 2008 12:32 am

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  2. Jann on February 7th, 2008 4:24 am

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  5. hanif on February 11th, 2008 12:41 am

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  6. rona on February 11th, 2008 5:01 am

    A contingent asset is a potential asset associated with a contingent gain. Unlike contingent liabilitIts a valued information in my studying area ies and contingent losses

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  8. Sbu on February 12th, 2008 5:38 am

    When preparing a balance sheet for a start-up company, how does “contigency cost” that is built-in the Capital requirement classified?

    Example: Company A is planning on buying land and constructing a manufacturing plant. The Land costs R10m, construction and civil works is estimated at R50m. There is a provision for 5% i.e R2,5m of plant construction cost added to the total capital required.

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  10. G son on March 11th, 2008 5:04 am

    what is provision of bad debts?

  11. Muhammad Ajaz Paracha on March 20th, 2008 10:59 am

    If a company filed an application to taxation department for refund of taxes excessively paid in previous periods and is with-held by the department till the decision of judiciary. Please guide me is that comes within the meaning of potential asset associated with a contingent gain?

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