Financial Statements - 1 — Account STD 11 Commerce — Question

Contingent Liabilities: These are the liabilities which will become payable 1 only on the happening of some specific event, otherwise not. The best example would be amount to be paid as compensation to some party if the company in question loses a certain case in court (ex-case related to extra payments to labourers). In this situation, two things may happen:

1. If the company loses the case, it will have to pay the compensation.
2. If it wins, no compensation will be paid,

Thus since the amount cannot be treated with certainty as liabilities (the compensation amount), it will be shown as contingent liabilities as a footnote in the balance sheet.