Answer to Question #182271 in Management for sandeep

Question

Distinguish "contingent liability" and "provision" (eg. provision of long service leave) and refer to the relevant AASB for guidance. How do these reporting affect the financial position of a business overall. Provide relevant examples. Locate and take a screenshot of the Balance Sheet of your company (that were allocated to you for the assignment). Is there any "contingent liabilities" reported on your Company's Balance Sheet? Discus

Answer 1

An entity recognises a provision if it is probable that an outflow of cash or other economic resources will be required to settle the provision. If an outflow is not probable, the item is treated as a contingent liability.

A contingent liability threatens to reduce the company's assets and net profitability and, thus, comes with the potential to negatively impact the financial performance. Therefore, such circumstances or situations must be disclosed in a company's financial statements, per the full disclosure principle.

There is no contingent liability reported in my company.