Financial Reporting · Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets

Ind AS 37: Changes, Use of Provisions and Disclosures (CA Final)

Updated 5 October 2026 · Fact-checked

Under Ind AS 37 you review every provision at each reporting date and adjust it to the current best estimate. Reverse it if an outflow is no longer probable. Use it only for the expenditure it was created for. Disclose a reconciliation by class, plus nature, timing and uncertainties. Levies follow IFRIC 21.

Understand Changes, Use of Provisions and Disclosures

A provision is not a one-time entry. Estimates move, so Ind AS 37 requires you to review provisions at the end of each reporting period and adjust them to the current best estimate. If an outflow of resources is no longer probable, you reverse the provision. The reversal normally goes through profit or loss.

Two more rules protect the reader. First, where a provision is discounted, its carrying amount rises each period as the discount unwinds. That increase is recognised as a borrowing cost, not as an operating expense. Second, a provision is used only for the expenditure for which it was originally recognised. If you set unrelated costs against it, you hide the effect of two different events. The old provision should be reversed if it is not needed, and the new cost should be recognised on its own merits.

Disclosure is built around a reconciliation for each class of provision. It shows the opening balance, additions, amounts used, unused amounts reversed, the unwinding of discount and the closing balance. Comparative figures are not required for this reconciliation. You also give the nature of the obligation, the expected timing of outflows, the uncertainties and any expected reimbursement. Contingent liabilities and contingent assets have their own disclosure rules. A contingent liability is disclosed unless the chance of outflow is remote. A contingent asset is disclosed only when an inflow is probable. In extremely rare cases, the information required for provisions, contingent liabilities and contingent assets may be omitted, but only where disclosure would seriously prejudice the entity's position in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset (para 92). Even then you disclose the general nature of the dispute and why the information was not disclosed.

IFRIC 21 (Appendix C to Ind AS 37) deals with levies. A levy is an outflow imposed by government under legislation. It excludes income taxes (Ind AS 12), fines and penalties, and outflows covered by other standards. The key question is what the obligating event is. It is the activity that triggers payment, as stated in the legislation. Being forced to keep operating, or preparing accounts on a going concern basis, does not create the obligation. So you recognise the liability when the triggering activity happens. If the activity occurs over time, the liability builds up progressively. If the levy is triggered only when a threshold is reached, you recognise it when the threshold is reached.

For differences from IAS 37, remember that the core recognition, measurement and disclosure principles are the same. Learn the specific carve-out or difference points listed in your ICAI study material for this chapter and do not guess others. Appendix C on levies applies in interim reports on the same recognition principles as annual reports.

Key rules to remember

Review rule: Provision at reporting date = current best estimate of the amount to settle the obligation; Review at the end of every reporting period. Reverse if an outflow is no longer probable.
Provision roll-forward (per class): Closing = Opening + Additional provisions (incl. increases to existing) + Unwinding of discount and effect of rate change − Amounts used − Unused amounts reversed; Disclose each line for every class of provision. Comparatives are not required for this reconciliation.
Use rule: Provision can be set off only against the expenditure for which it was originally recognised; Unrelated cost goes to profit or loss, or against its own provision. Do not use the old provision.
Unwinding of discount: Unwinding = Opening discounted provision × discount rate (for the period); Recognised as a borrowing cost, not as an operating expense.
Other disclosures per class: Nature and expected timing + uncertainties and major assumptions + expected reimbursement (and any asset recognised); Given alongside the reconciliation.
Contingent items: Contingent liability: disclose unless outflow is remote. Contingent asset: disclose only if inflow is probable.; Disclosure includes a brief description, estimate of financial effect and uncertainties. Contingent assets are reviewed continually. When the inflow becomes virtually certain, the asset is no longer contingent and is recognised.
Seriously prejudicial cases: In extremely rare cases, the information required for provisions, contingent liabilities and contingent assets may be omitted only where disclosure would seriously prejudice the entity's position in a dispute with other parties on the subject matter of the item; disclose the general nature of the dispute and why the information was not disclosed; This exception (para 92) is narrow. It is tied to a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. Do not use it as a routine escape.
IFRIC 21 levies: Obligating event = the activity that triggers payment, as identified by the legislation; Progressive activity gives progressive recognition. A threshold trigger gives recognition when the threshold is reached. Interim reports follow the same recognition principles.

How to solve Changes, Use of Provisions and Disclosures questions

Use this order for any question on changes, use, reversal, disclosures or levies.

1Identify the item: an existing provision, a new cost, a levy or a contingent item. Decide which rule applies.
2For an existing provision, find the current best estimate at the reporting date and compare it with the carrying amount.
3If the estimate has changed, adjust the provision. If an outflow is no longer probable, reverse it fully, normally through profit or loss.
4If the provision is discounted, compute the unwinding for the period and show it as a borrowing cost.
5Check what the expenditure relates to. Set it against the provision only if it is the same event the provision was created for. Otherwise treat it separately.
6For a levy, read the legislation to find the triggering activity. Recognise the liability when that activity occurs, progressively or at the threshold as the facts say. Do not accrue just because the entity will keep operating.
7Prepare the disclosure, such as a roll-forward by class, nature and timing, uncertainties and reimbursement. Add contingent liability or asset notes where required.
8State the conclusion in provision, facts, conclusion form with the paragraph logic.

Quickest way: Roll-forward and trigger check

When to use it: Use this when the question gives movements in a provision or a levy with a trigger date and asks for the amount to recognise or disclose.

Write the roll-forward grid: Opening, Additions, Unwinding, Used, Reversed, Closing.
Fill it from the data. Unrelated expenditure does not go in the Used line.
Check that Closing equals the current best estimate.
For a levy, circle the trigger date or threshold in the question and recognise nothing before it.
Write a one-line reason with the rule: reviewed at each date, used only for the original purpose, or the obligating event under IFRIC 21.

Common mistakes in Changes, Use of Provisions and Disclosures

Using a provision to absorb a different expense.
The provision balance is sitting unused and the new cost looks similar.
Fix: Allow set-off only for the expenditure the provision was created for. Reverse any unneeded balance and recognise the new cost separately.
Leaving a provision unchanged because the earlier estimate was reasonable.
Students treat recognition as a one-time event.
Fix: Review at every reporting date and adjust to the current best estimate. Reverse if outflow is no longer probable.
Showing the unwinding of discount as an operating expense.
It is a provision-related charge, so it seems operating.
Fix: Show it as a borrowing cost (finance cost).
Spreading an annual levy over the year when the legislation triggers it on one date.
Matching and accrual instincts from the old approach.
Fix: Under IFRIC 21 recognise the liability when the triggering activity occurs. If the trigger is a single date, recognise the full amount then, including in interim reports.
Disclosing a contingent asset because the claim looks strong.
Confusing optimism with probability.
Fix: Disclose only if an inflow is probable. If it is virtually certain, it is no longer contingent and is recognised as an asset.
Providing comparatives in the provision reconciliation or leaving out classes.
Applying general presentation habits to this note.
Fix: Give the reconciliation for each class. Comparative information is not required for it.

Worked examples

Example 1

Case: Veda Ltd (Ind AS) has a provision for warranty claims of ₹20,00,000 at 1 April 2026. During 2026-27 it makes additional provisions of ₹12,00,000, incurs warranty costs of ₹9,00,000 against the provision and reverses ₹3,00,000 as unused. The discount unwinding for the year is ₹1,50,000. It also spends ₹4,00,000 on repairing a damaged plant, which has nothing to do with warranties. Prepare the provision reconciliation and say how to treat the repair cost.

Show the solution

Opening balance is ₹20,00,000.
Add additional provisions of ₹12,00,000 and the unwinding of discount of ₹1,50,000. The running total is ₹33,50,000.
Deduct amounts used of ₹9,00,000. The total is ₹24,50,000.
Deduct unused amounts reversed of ₹3,00,000. The closing balance is ₹21,50,000.
The unwinding of ₹1,50,000 is a borrowing cost in profit or loss.
The ₹4,00,000 plant repair is not a warranty cost. A provision may be used only for the expenditure it was recognised for, so it is not set against the warranty provision.
Treat the repair according to the relevant standard (for example Ind AS 16 for PPE). Do not use the warranty provision to absorb it.

Answer: Closing warranty provision is ₹21,50,000. The reconciliation shows opening ₹20,00,000, additions ₹12,00,000, unwinding ₹1,50,000, used ₹9,00,000 and reversed ₹3,00,000. The unwinding is a borrowing cost. The ₹4,00,000 repair cost must not be set against the warranty provision.

Example 2

Case: Rudra Ltd's financial year ends 31 March. Legislation imposes a levy of ₹6,00,000 on any entity operating in a specified market on 1 July 2026, based on its previous-year revenue. Rudra is operating in that market on that date. Rudra publishes quarterly interim reports. When should it recognise the levy? Separately, a second levy of ₹2,00,000 applies only when an entity's revenue in the calendar year first exceeds ₹100 crore. When is it recognised?

Show the solution

Identify the obligating event for the first levy. The legislation triggers payment by operating in the market on 1 July 2026.
Before 1 July 2026 Rudra has no present obligation. Its expectation to keep operating or going concern basis does not create one.
On 1 July 2026 the obligating event occurs, so the full ₹6,00,000 is recognised then. It is not spread across the year.
In the interim report for the quarter ended 30 June 2026 nothing is recognised, as the trigger date falls after that quarter ends.
In the interim report for the quarter ended 30 September 2026 the full ₹6,00,000 is recognised. Later quarters carry no further charge for this levy, and the same principles apply as for annual reporting.
For the second levy, the obligating event is revenue in the calendar year first exceeding ₹100 crore. Recognise nothing in the interim periods before that happens.
Recognise the full ₹2,00,000 in the interim period in which revenue in the calendar year first exceeds ₹100 crore. It is not spread over the earlier periods.

Answer: The first levy of ₹6,00,000 is recognised in full on 1 July 2026 and nothing is recognised before. It appears in the quarter ended 30 September 2026, not in the quarter ended 30 June 2026 and not spread over the year. The second levy of ₹2,00,000 is recognised in full in the interim period in which revenue in the calendar year first exceeds ₹100 crore, and not spread over earlier periods.

Exam tips

Practical questions often give a roll-forward. Draw the grid first and make sure the closing balance matches the best estimate.
In theory answers, quote the rule in sequence: review at each reporting date, reverse if outflow is not probable, use only for the original expenditure.
For levy questions, underline the trigger in the case. The answer follows the trigger date, not the accounting year or the budget.
Disclosure answers earn marks by class-wise items: the roll-forward, nature and timing, uncertainties, reimbursement. Write them as a short list.
For the Ind AS 37 versus IAS 37 point, state that the core principles align and name only the differences you are sure of from ICAI material.

Practice questions from Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets

Changes, Use of Provisions and Disclosures: frequently asked questions

Can I use a provision for a cost different from the one it was made for?

No. A provision is set off only against the expenditure for which it was originally recognised. If the original provision is no longer needed, reverse it and recognise the new cost on its own.

Do I need comparative figures in the provision reconciliation?

No. Ind AS 37 does not require comparative information for the reconciliation of each class of provision. The other disclosures still need to be given.

What is the obligating event for a levy under IFRIC 21?

It is the activity that triggers payment of the levy, as identified by the legislation. Recognise the liability when that activity occurs. Going concern or economic compulsion to keep operating does not create the obligation.

Does the unwinding of discount on a provision go to finance cost?

Yes. Where a provision is discounted, the increase in carrying amount from the passage of time is recognised as a borrowing cost.

When can I leave out contingent liability disclosures?

You can leave out a contingent liability disclosure when the possibility of outflow is remote. Separately, in extremely rare cases where disclosure would seriously prejudice the entity in a dispute with other parties, the para 92 exemption lets you omit the information required for provisions, contingent liabilities and contingent assets alike. In that case you still disclose the general nature of the dispute and the reason the information was not disclosed.