Contingent Liabolity

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Querist : Anonymous

Querist : Anonymous (Querist)

24 April 2010 Is bank guaranty and outstanding LC a contingent liability? Kindly clarify

Aditya Maheshwari

Aditya Maheshwari (Expert)
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24 April 2010 Bank guarantee is a contingent liability.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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24 April 2010 On the other hand LC limit is a non funded facility given by the banker. It is a sort of assurance given to the supplier of goods or services for making a payment. A note to that effect is given in the final accounts that a contingent liability is there to the extent of LC limit availed by the borrower.

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Querist : Anonymous

Querist : Anonymous (Querist)

26 April 2010 Dear Aditya,
There is some doubt in my mind. Bank guarantee is given by bank on companies behaif. In such case it is contingent liability for Bank. if company concerned fails to full fill condition for which BG is given bank have to pay as per BG given. so it is quite clear it is Contingent liablity for bank
As far as company is concerned i am of openinon that it can not be termed as contingent liability. as result of out come of liality to pay for BG is on performance of its own duty.
kindly clarify.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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26 April 2010 Dear Pravin Kumar
You have not mentioned anywhere in your query who has given the bank guarantee for whom. So the answer is a subjective to the problem in hand. I thought that it could have a bank guarantee given for a group company also like a counter guarantee and hence was to be shown as contingent liability.

If someone else has given a guaranttee for you then it is not a contingent liability for the purpose of your accounts.

Querist : Anonymous

Querist : Anonymous (Querist)

26 April 2010 Sir,
i do accept my question was not clear.
Thank u for solving Query

Aditya Maheshwari

Aditya Maheshwari (Expert)
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26 April 2010 You are welcome. Next time try to give more details so that no inconvinience is caused to you and also to the expert replying.