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What are Contingent Assets? Meaning.
Contingent Assets are potential assets that arise from past events, and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events, which are not wholly within the control of the entity.
Example of a Contingent Asset
These assets are often simply rights to a future potential claim.
Another example might be a potential settlement from 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, Company A has a contingent asset.
Accounting Treatment of Contingent Assets
In contrast to loss contingencies, gain contingencies are not recorded on the balance sheet until the event actually occurs and the obligation is confirmed.
Both under U.S. GAAP as well as under IAS/IFRS (IAS 37), contingent assets and gain contingencies should only be disclosed in the footnotes of the financial statements where an inflow of economic benefits is probable.
This differing treatment of loss contingencies and gain contingencies illustrates accounting conservatism, i.e. the notion that it is desirable to anticipate losses, but recognizing gains should wait until their confirmation and realization..
Contingent Assets Scope
IAS 37 excludes obligations and contingencies arising from:
Compare with: Contingent Liabilities | Assets Held For Sale | Accrual Accounting
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