Generally, A contingent liability is a potential obligation the outcome of which is depends on happening or non happening of future uncertain event.
A contingent liability is recorded in the books of accounts only if the contingency is probable and the amount of the liability can be estimated.
Similarly, A contingent asset is a potential economic benefit dependent solely on future events that can’t be controlled by the company.
Due to the uncertainty of the future events, these assets are not recorded on the balance sheet
The selected Annual report is Ford Motor Company for 2015.
In the notes to Financial Statements, Note 27. COMMITMENTS AND CONTINGENCIES:
Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and
The risk from these transactions and events would be as follows,
“We guarantee debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside
third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee.”
The maximum potential payments and the carrying value of recorded liabilities related to guarantees and limited
indemnities at December 31 were as follows (in millions):
Maximum potential payments $ 284 $ 592
Carrying value of recorded liabilities related to guarantees and limited indemnities 23 17
Warranty and Field Service Actions:
We accrue obligations for warranty costs and field service actions (i.e., safety recalls, emission recalls, and other
product campaigns) at the time of sale using a patterned estimation model that includes historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year.
Beginning balance $ 4,786 $ 3,927
Payments made during the period (2,849) (2,850)
Changes in accrual related to warranties issued during the period 2,046 2,108
Changes in accrual related to pre-existing warranties 807 1,746
Foreign currency translation and other (232) (145)
Ending balance $ 4,558 $ 4,786
2. Off-balance-sheet Items:
Off-balance-sheet financing is one form of financing which involves large capital expenditures are kept off of a company’s balance sheet through various classification methods. Companies will often use off-balance-sheet financing to keep their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large expenditure would break negative debt covenants.
In ford motor company, the Offf balance sheet items are Purchase obligations and operating leases.
Purchase obligations” are defined as off-balance sheet agreements to purchase goods or
services that are enforceable and legally binding on the Company and that specify all significant terms.
Operating leases are one of the most common forms of off-balance-sheet financing. In these cases, the asset itself is kept on the lessor’s balance sheet, and the lessee reports only the required rental expense for use of the asset.
The table below shows the status of off balance sheet items of Ford Motor Company.