Which of the following situations is not a contingent liability?

Which of the following situations is not a contingent liability?

a. Debt guarantee of owner

b. Future natural disaster

c. Possible legal claim against a company

d. Probable legal claim against a company

Answer: b. Future natural disaster

A contingent liability is defined as an actual or legal estimate of a liability that may arise from past events. It is confirmed only if one or more contingent events do not happen or happen in the future and are beyond the control of the entity. Of the choices given below a future natural calamity cannot be regarded as contingent liability because it is not the direct outcome of past events and does not involve a probable liability due to the happenings in the past.

However, owners’ liabilities (or potential obligations detailed as option a), legal threats against a company (option c), and likely legal threats against a company (option d), are all examples of contingent assets. These are contingent liabilities that arise where there is an actual possibility of future sacrifice; depending on the occurrence of a certain event, such as the occurrence of a guaranteed ‘loss’ in the case of a guaranteed debt or an unfavourable outcome in litigation.