Contingent Liability is that liability which may or may not arise. It may or may not involved payment of money. Such a liability shown by way of foot note in the Balance sheet. Example: Liability for calls on partly paid-up shares, Liability in respect of bills discounted, arrears of cumulative preference dividend, and Liability under guarantee.
While showing the contingent liabilities at the foot of the balance sheet liabilities arising due to transactions with in the groups must be eliminated and liabilities arising due to transactions between the group and the outsiders must be retained.