Question

Classify contigent liabity according to companies act1956

Answer 1

hey guy ur defintation is sort u can search on internet uploaded last in few day

It is observed from published accounts of many a company that the following item is appended under the head “Contingent Liabilities”.
“In respect of guarantee and counter-guarantee given by the
Company against guarantee given by a Bank on behalf of the
Company……”
The arrangement is that Bankers of the Company furnish guarantee to the third parties for the due performance of the contract by the Company, for which they in turn demand counter-guarantee form the Company.
To us, it appears that mention of the same as contingent liability of the Company is inappropriate. It would be the contingent liability of the Bank and not the Company, and as such, should have properly occurred in the Accounts of the Bank. In the event of breach of performance of the contract on the part of the Company, it would be an accrued and crystallized liability and not nearly a contingent liability.
What is the correct accounting procedure to be adopted in such case for the purpose of preparation of accounts of the Company in accordance with the requirements of the Companies Act, 1956?