What is a contingent asset?

Definition of Contingent Asset

A contingent asset is a potential asset that is associated with a potential gain. The asset and gain are contingent because they are dependent upon some future event occurring or not occurring.

Because of the concept of conservatism, a contingent asset and gain will not be recorded in a general ledger account or reported on the financial statements until they are certain. [This is different from contingent liabilities and contingent losses, which are recorded in accounts and reported on the financial statements when they are probable and the amount can be estimated.

Example of Contingent Asset

An example of a contingent asset (and its related contingent gain) is a lawsuit filed by Company A against a competitor for infringing on Company A's patent. Even if it is probable (but not certain) that Company A will win the lawsuit, it is a contingent asset and a contingent gain. As such, it will not be recorded in Company A's general ledger accounts until the lawsuit is settled. (At most, Company A could prepare a carefully worded disclosure stating that it has filed the lawsuit but the outcome is uncertain.)