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Financial Statements of Sole Proprietorship — Account STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceAccountFinancial Statements of Sole Proprietorship4 Marks
Question
Write a short note on Contingent Liability.
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Answer

Contingent Liabilities: Contingent Liability is a liability that becomes payable on the happening of an event. In case, the event does not happen, no amount is payable. Such liabilities are not accounted and are not shown in the Balance Sheet; they are disclosed by way of a note.
Examples of contingent liabilities are:
  1. Liabilities in Respect of Bills Discounted: If the firm got its bills receivable discounted with bank, the primary liability will be that of the acceptor. If the acceptor does not pay, then it becomes firm's liability.
  2. Guarantee for Loan: If the firm has stood surety for a loan, it will be liable to pay the amount if the other person fails to meet his obligation.
  3. Disputed Claims: If some other party has lodged a claim against the firm, the firm will be liable to pay if the claim succeeds.

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