Ans. Contingent liability does not appear on any side of the balance sheet. Contingent liability is not shown in the main body of the balance sheet. Contingent liability is always shown in ‘Notes to Accounts’, beneath the balance sheet. Example for contingent liability is ‘liability for bills discounted, not matured’. As the bill is already discounted, say with a bank, bill amount does not appear on the assets side in the balance sheet. Due date has not yet arrived, so the position of liability is not known. Liability may occur only if the drawee (person who has accepted the bill and liable to make payment on the due date) fails to make the payment to the bank on the due date, which is subsequent to the balance sheet date.
On which side of the balance sheet does contingent liability appear? Explain with an example?
Ans. Contingent liability does not appear on any side of the balance sheet. Contingent liability is not shown in the main body of the balance sheet. Contingent liability is always shown in ‘Notes to Accounts’, beneath the balance sheet. Example for contingent liability is ‘liability for bills discounted, not matured’. As the bill is already discounted, say with a bank, bill amount does not appear on the assets side in the balance sheet. Due date has not yet arrived, so the position of liability is not known. Liability may occur only if the drawee (person who has accepted the bill and liable to make payment on the due date) fails to make the payment to the bank on the due date, which is subsequent to the balance sheet date.
