What are the contingent liabilities and where does it reflects in the balance sheet?

Contingent liability:

• a possible obligation depending on whether some uncertain future event occurs, or
• a present obligation but payment is not probable or the amount cannot be measured reliably ( IAS37)

Since there is common ground as regards liabilities that are uncertain, IAS37 also deals with contingencies. It requires that entities should not recognise contingent liabilities – but should disclose them, unless the possibility of an outflow of economic resources is remote. [IAS37.86]

A contingent liability is recorded first as an expense in the Profit & Loss Account and then on the liabilities side in the Balance sheet.

DEBTORS MEAN RECEIVABLES/ASSET Cost minimize

It is hypothetical liability depends on a particular situation to occur before becoming an actual liability. Contingent liabilities are different for every type of business, management makes provision for them by setting aside appropriate funds as reserves. Examples include acts of employees, credit guarantees, incomplete contracts, pending court cases, third party indemnities,  unsettled disputes, etc. Contingent liabilities must be disclosed in a Balance sheet via an explanatory note (footnote).

Agreed with the answer given by Sreedevi. It is not disclosed in Balance sheet, but separately mentioned in the notes to financial statements.

As per IAS37, the notes should disclose an estimate of the potential financial effect and uncertainties relating to the contingent liability or timing of any outflow. 

 

When the conditions relating to contingent liability, no more remains true i.e. payment becomes certain or obligation can be determined, then it becomes a liability that gets transferred to financial statements.

AGREED WITH SREEDEVI SUNILKUMAR