Month: June 2013

In accounting, a contingent asset is defined as a possible asset that is based on past events, and the existence of which depends on uncertain future events that can’t be controlled by the company.

The classic example of a contingent asset is a lawsuit filed by a company for damages incurred in the past, which is still being debated and the result is unknown.

According to the rules of accounting, contingent assets are not recognized in financial statements, unless the realization of the profit is virtually certain. Based on this approach, the contingent asset must be disclosed only if the odds of realizing it are probable. This disclosure is required, for instance, following an insurance event that grants a company the right to indemnity, but which does not provide absolute certainty about the receipt of indemnity or its extent, even though the probability of receiving it is higher than 50%.