BOE General Queries

Hi all,
In BOE what is the meaning of contingent liability account. How does that affect the financial statemetns ? What is the reason for reverse contingency?
Suresh

Hi Suresh,
Contingent liabilities are liabilities that may or may not be incurred by a company and which depend on the outcome of a forthcoming event such as a court case. These are recorded in a company's accounts as contingent liabilities under accounts payable.
An example of this could be forward contract and is explained below.
A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated. It is used to control and hedge risk, for example currency exposure risk (e.g. forward contracts on USD or EUR) or commodity prices (e.g. forward contracts on oil).
One party agrees (obligated) to sell, the other to buy, for a forward price agreed in advance. In a forward transaction, no actual cash changes hands. If the transaction is collaterised, exchange of margin will take place according to a pre-agreed rule or schedule. Otherwise no asset of any kind actually changes hands, until the maturity of the contract.
The forward price of such a contract is commonly contrasted with the spot price, which is the price at which the asset changes hands (on the spot date, usually two business days). The difference between the spot and the forward price is the forward premium or forward discount.
A standardized forward contract that is traded on an exchange is called a futures contract.
Reverse contingency arrangements are sometimes used when an attorney represents a defendant. The reverse contingency fee may be based on a percentage of the amount an attorney can save the client in settling or winning the case.
Hope this helps. Please assign points.
Rgds
Manish

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