What are Contingent Liabilities? Explain with examples.

Dear Student,
A contingent liability is one where the outcome of an existing situation is uncertain, and this uncertainty will be resolved by a future event.
It includes the following:
​1. Claims against the company not acknowledged as Debts.
2. Uncalled liability on partially paid shares.
3. Arrears of Fixed Cumulative dividends.
4. Estimated amount of contracts remaining to be executed on Capital account and not provided for.
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Hypothetical liability which depends on a possible (but hardly likely) event or situation to occur before becoming an actual liability. Contingent liabilities are different for every type of business and profession, and management makes provision for them by setting aside appropriate funds as reserves. Examples include acts of employees, credit gurantees, incomplete contracts, pending court cases, third party indemnities, unfilled purchase orders, unsettled disputes , etc. Under corporate - legislation , contingent liabilities must be disclosed in a balance sheet via an explanatory note (footnote)

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