04-05-2011, 03:32 PM
The term contingencies and commitments appears near the end of a balance sheet without an amount in order to direct a readerâs attention to the disclosures included in the "notes to the financial statements". No provision can be recognised.
An amount is not shown for a variety of reasons. For example, a chain of retail stores may have signed five-year, noncancellable leases to rent retail space for $1 million per year. This commitment needs to be disclosed to the readers of the balance sheet. However, if none of the $5 million is actually due as of the balance sheet date, there is no liability amount to be recorded in a liability account.
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