ACCA Advanced Audit and Assurance (AAA) Practice Exam

What type of asset is contingent upon future uncertain events?

1. Recognized asset

2. Contingent asset

3. Current asset

4. Fixed asset

The correct answer is: Contingent asset

The correct answer is a contingent asset. A contingent asset is defined as a potential asset that may arise from future events that are uncertain and not fully within the control of the entity. It typically relates to situations where the entity might benefit from a future event, such as a legal claim, where the outcome is not guaranteed. In accounting terms, a contingent asset is not recognized in the financial statements unless it is virtually certain that the asset will be realized. As such, it is disclosed in the notes to the financial statements to ensure transparency and provide users with relevant information about the potential future benefits. Recognized assets are those that meet specific criteria for recognition on the balance sheet and are typically certain in nature and quantifiable. Current assets refer to resources expected to be converted into cash or consumed within one year, while fixed assets refer to long-term tangible properties not intended for sale in the regular course of business. Neither current nor fixed assets incorporate uncertainty in their existence, making them distinct from the concept of a contingent asset.