Contingent gain definition
/What is a Contingent Gain?
A contingent gain is a potential increase in assets that has not yet occurred. A contingent gain is not recognized in the financial statements until the transaction has been settled. However, it is possible to describe the nature of the gain in the disclosures that accompany the financial statements, as long as the description is not misleading regarding when the gain might occur or the probability of its occurrence.
Example of a Contingent Gain
A company has filed a lawsuit against a competitor for patent infringement and expects to receive a settlement of $5 million. However, the case is still pending in court, and the outcome is uncertain. The $5 million is considered a contingent gain because it depends on the court ruling in favor of the company. According to accounting rules, the company will not record the $5 million as income in its financial statements until the gain is realized (e.g., when the court rules in its favor and the payment is received or assured).