Contingent Liability

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This query is : Resolved

CA Saurabh J. Makwana (Querist)

02 July 2010 I'm working as credit analyst in SBI.
During analyzing audit report of various companies i found contingent liabilities in notes to accounts. Their contingent liabilities includes guarantee given by bank against the company to third party.
E.G
There is a XYZ company. SBI has given guarantee to ABC ltd for non payment by XYZ for the raw material supplied by ABC.
Now according to me guarantee is contingent liability for SBI and not for XYZ.
But audit report of XYZ shows it as contingent liability of XYZ.
So advice me. Whether i'm correct or audit report is correct?

CMA.Ramesh Krishnan has given answer to me, but i'm not getting any clarity. Mr.Ramesh is saying that it is real contingent liability but according to me it is a confirm liability which is already booked in accounts. So there is no need for contingent liability disclosure.

So when Company has already booked liability, there is no need of contingent liability. So my conclusion is like this
1) For company it is confirmed liability(which will be already booked in accounts and hence not required to be disclosed as contingent liability)
2) It is contingent liability for bank

Pls correct me where i'm wrong

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

02 July 2010 No. Bankers will not give any guanrantee without any base or customer capacity and also for giving gurantee Banker keeping some margin money and other securites.

Ultimate Liability is on customer only, they need to pay to bank at any cost. so it is real contingent liablity for customer only not bankers

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