ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A contingent liability is a liability that may occur depending on the outcome of an uncertain future event. Contingent liabilities are recorded if the contingency is likely and the amount of the liability can be reasonably estimated.

Detailed explanation-2: -The liability may be a legal obligation or a constructive obligation. A constructive obligation arises from the entity’s actions, through which it has indicated to others that it will accept certain responsibilities, and as a result has created an expectation that it will discharge those responsibilities.

Detailed explanation-3: -Current and contingent liabilities are both important financial matters for a business. The primary difference between the two is that a current liability is an amount that you already owe, whereas a contingent liability refers to an amount that you could potentially owe depending on how certain events transpire.

Detailed explanation-4: -Potential lawsuits, product warranties, and pending investigation are some examples of contingent liability.