Contingent Asset

A contingent asset is a potential asset that may become an asset in the future, depending on the outcome of an uncertain event. Contingent assets are not recognized on the balance sheet until they are realized. However, they are disclosed in the notes to the financial statements.

There are two types of contingent assets:

• Probable contingent assets: These are contingent assets that are likely to occur.
• Possible contingent assets: These are contingent assets that are not as likely to occur.

Probable contingent assets are recorded on the balance sheet at their fair value. Possible contingent assets are not recorded on the balance sheet, but they are disclosed in the notes to the financial statements.

The following are examples of contingent assets:

• A lawsuit against a company that is likely to be successful.
• A pending government grant that is likely to be awarded.
• A contract that is likely to be signed.

Contingent assets can be very valuable, but they can also be very risky. It is important for companies to assess the likelihood of a contingent asset becoming an asset in order to determine how to account for it.