Note: We encourage you to attempt this with complete conscience within a 30 minutes time frame. Please feel free to refer to the ICAI Material and TowardsCA study notes before attempting the same. You can e-mail your answers to towardsca@gmail.com for verification.
Direct Questions:
- Define “Contingent Assets” and provide two examples of such assets.
- Explain the concept of “Contingent Liabilities” and give two examples of such liabilities.
- How are contingent assets and contingent liabilities different from recognized assets and liabilities in financial accounting?
- What is the accounting treatment for contingent assets and contingent liabilities in financial statements?
- Discuss the disclosure requirements for contingent assets and contingent liabilities in the notes to financial statements.
Practical Questions:
- ABC Ltd. is involved in a legal dispute where it might receive a substantial settlement amount. Explain how ABC Ltd. should recognize and disclose this contingent asset in its financial statements.
- DEF Company is facing potential warranty claims on its products. Describe the accounting treatment and disclosure requirements for these contingent liabilities in DEF Company’s financial statements.
- XYZ Corporation has provided a performance guarantee for a contract. Discuss how XYZ Corporation should account for and disclose this contingent liability in its financial statements.
- LMN Ltd. is engaged in a tax dispute with the authorities. Explain how LMN Ltd. should assess and disclose the potential contingent liability related to this dispute in its financial statements.
- PQR Enterprises has received an offer to purchase a piece of land at a significantly higher price than its carrying value. Discuss how PQR Enterprises should account for and disclose this contingent asset in its financial statements.