Which treatment applies to contingent assets assessed as probable (>50%)?

• A. Recognise the asset
• B. Disclose in notes
• C. Ignore
• D. Recognise as revenue

Answer: (B)

When dealing with contingent assets, recognition in the financial statements happens only when the inflow is virtually certain. If the inflow is probable (more likely than not, over 50%) but not virtually certain, you do not recognise the asset yet; you disclose the existence of the contingent asset in the notes, outlining its nature and the potential financial impact. This keeps users informed while not overstating assets.

So for a contingent asset assessed as probable, the appropriate treatment is to disclose it in the notes. Recognising the asset would be premature because it isn’t virtually certain. Ignoring it isn’t appropriate because there is a significant possibility of inflow, and recognising as revenue isn’t correct because revenue is recognised when the inflow becomes virtually certain and other revenue recognition criteria are met.