Question

Guarantees given by a business are considered:

• A. Current liabilities
• B. Non-current liabilities
• C. Contingent liabilities
• D. Assets

Answer 1

Answer:

C. Contingent liabilities

Liabilities

• It refers to the amount of firms owes to the outsiders. It is the amount which a business owes to the outsiders either for money borrowed or for goods or assets purchased on credit for service received. They represent creditors claim on the firm assets.

Liabilities can be classified into Two

• 1. Current Liabilities

• 2. Non-Current Liabilities.

Current Liabilities (Short term liabilities)

• Refers to those liabilities which are to be paid off within a short period. i.e. within a year. E.g. Creditors, Bank Overdraft, Bill Payable, outstanding expenses, short term loans

Non-Current Liabilities (Long term liabilities)

• Non-Current Liabilities(Long term liabilities) Are those liabilities which are to be paid off after a long period i.e. more than a year.

• Example-Long term loans ,debentures.

Contingent Liability

• These are not real liabilities. Future events can only decide whether it is a really a liability or not. Due to their uncertainty they are termed as doubtful (contingent) Liabilities.

• The value of contingent liabilities never shown in the amount column at then liability side of the Balance sheet.

• It is clearly state that a note inside/outside of Balance Sheet.

  E.g.

• Value of bill discounted (There is chance to dishonour it)

• Cases pending in the court(Court decision may be favourable or unfavourable)

• Guarantees undertaken by the Business