Which of these would be defined as contingent liabilities?
I.A loan from a financial institution
II.An unresolved lawsuit bought against the entity for breach of health and safety regulations
III.An agreement to act as guarantor for another firm's borrowings
IV.A bank overdraft

Question

Quizplus · Accepted Answer

Contingent liabilities are potential liabilities that may arise in the future, depending on the outcome of a certain event. Option II, an unresolved lawsuit, and option III, an agreement to act as guarantor for another firm's borrowings, both meet this definition. Options I and IV, a loan from a financial institution and a bank overdraft, respectively, are not contingent liabilities as they are current liabilities with a definite payment requirement.

Which of These Would Be Defined as Contingent Liabilities