Advanced Accounting · AS 29 (Revised) Provisions, Contingent Liabilities and Contingent Assets

Disclosures and Practical Problems in AS 29 for CA Inter

Updated 4 October 2026 · Fact-checked

AS 29 asks you to disclose, for each class of provision, a reconciliation of opening balance, additions, amounts used, unused amounts reversed and closing balance, plus nature, timing and uncertainty. Contingent liabilities are disclosed, not provided for. To solve problems, test the three recognition conditions, then pick provision, disclosure or no entry.

Understand Disclosures and Practical Problems in AS 29

AS 29 sorts every uncertain obligation into one of three buckets. A provision is a liability of uncertain timing or amount that you recognise in the books. A contingent liability is not recognised; you only disclose it. A contingent asset is never recognised; you disclose it only when an inflow is probable.

A provision is recognised only when three conditions are met together. There is a present obligation arising from a past event. It is probable that an outflow of resources will be needed to settle it. A reliable estimate of the amount can be made. If any one fails, no provision is made.

If it is a possible obligation, or a present obligation where outflow is not probable or cannot be reliably estimated, disclose a contingent liability. If the chance of outflow is remote, you do nothing.

Disclosure is where marks are won. For each class of provision you show a movement table: opening balance, additions (including increases in existing provisions), amounts used (charged against the provision), unused amounts reversed, and closing balance. You also give a brief description of the nature of the obligation, the expected timing of outflows, the main uncertainties, and any expected reimbursement.

For each class of contingent liability you give a brief description, an estimate of its financial effect, the uncertainties about amount or timing, and the possibility of any reimbursement. For a contingent asset where an inflow is probable, you give a brief description and an estimate of the financial effect. Disclosure may be left out where it would seriously prejudice the entity's position in a dispute; then you state the general nature of the dispute and the fact that the information is not disclosed and why.

Key rules to remember

Recognition test for a provision: Present obligation from past event AND outflow probable AND reliable estimate → Provision; All three must hold. Failing any one means no provision.
Provision reconciliation: Closing balance = Opening balance + Additions (incl. increases) − Amounts used − Unused amounts reversed; Prepared for each class of provision. Comparative figures are not required under AS 29.
Decision rule for contingent liability: Possible obligation, or present obligation with outflow not probable or no reliable estimate → Disclose; Remote → No disclosure; A contingent liability is never recorded as a liability in the books.
Contingent asset rule: Never recognise; disclose only if inflow is probable; If realisation is virtually certain, it is no longer a contingent asset and is recognised as an asset.
Best estimate of provision: Single obligation: most likely outcome. Large population: expected value (Σ probability × amount); Under AS 29 the provision is the best estimate of the expenditure required and is not discounted to present value (discounting is an Ind AS 37 requirement where the time value of money is material).
Reimbursement: Recognise reimbursement as a separate asset only when virtually certain; its amount cannot exceed the provision; The expense may be shown net of the reimbursement in the Statement of Profit and Loss.

How to solve Disclosures and Practical Problems in AS 29 questions

Use the same sequence for any provision, disclosure or no-provision question. Write each test so the examiner sees your reasoning.

1Identify the past event. Ask what has already happened by the balance sheet date that creates the obligation.
2Decide whether the obligation is present (legal or constructive) or only possible. If it depends on a future event not in the entity's control, it is possible.
3Judge the probability of outflow: probable (more likely than not), possible, or remote.
4Check whether a reliable estimate exists. For a large population use expected value; for a single item use the most likely outcome.
5Conclude: all three conditions met means provision; present or possible obligation without full conditions means contingent liability disclosure; remote means nothing.
6Pass the journal entry if a provision is made, and treat any virtually certain reimbursement as a separate asset.
7Write the disclosure: reconciliation by class, nature and timing, uncertainties, and for contingent liabilities the description and financial effect.
8State the final amount clearly and refer to the relevant AS 29 paragraph reasoning in one line.

Quickest way: Three-question filter for MCQs and short answers

When to use it: Use it for MCQs and for the first line of any written answer, when time is short.

Ask: has the event already happened by the balance sheet date? If no, there is no provision. Future operating losses never get a provision.
Ask: is outflow probable and can it be estimated? Yes to both means provision. Probable but not estimable, or only possible, means disclose.
Ask: is the chance remote? Then no disclosure either.
For MCQs, eliminate options that provide for gains, contingent assets or future losses. Remember no negative marking, so always attempt.
For written answers, use this layout: Provision/Facts, Conclusion, Working, Journal entry, Disclosure note. Each part earns step marks even if the final figure is off.

Common mistakes in Disclosures and Practical Problems in AS 29

Providing for future operating losses or for repairs to be done next year.
Students feel the cost is certain to arise, so they treat it as a liability.
Fix: There is no present obligation from a past event. Do not provide. A provision needs an obligation independent of the entity's future actions.
Treating a probable but unquantifiable obligation as a provision.
Students stop at the probability test and forget the reliable estimate condition.
Fix: Always test all three conditions. If no reliable estimate is possible, disclose a contingent liability.
Recognising a contingent asset because a court case looks favourable.
Students apply the same logic as for liabilities and ignore prudence.
Fix: Never recognise a contingent asset. Disclose only if inflow is probable. Recognise only when realisation is virtually certain.
Leaving out the reconciliation or mixing classes of provisions in one line.
Students remember the closing balance but not the movement headings.
Fix: Prepare a separate movement table for each class: opening, additions, used, unused reversed, closing.
Netting a reimbursement against the provision on the balance sheet.
Students want to show only the net exposure.
Fix: Show the reimbursement as a separate asset when virtually certain. Netting is allowed only in the Statement of Profit and Loss expense.
Disclosing remote contingencies or ignoring an event after the balance sheet date that gives evidence of a condition at that date.
Students do not link AS 29 with AS 4 on events after the balance sheet date.
Fix: Skip remote items. For post-balance sheet events that clarify a condition existing at the balance sheet date, adjust or provide as AS 4 requires.

Worked examples

Example 1

A company sells goods with a warranty for one year. Sales for the year were ₹2,00,00,000. Past experience shows 90% of goods will have no defects, 6% will have minor defects costing 5% of sales value to repair, and 4% will have major defects costing 20% of sales value to repair. The opening warranty provision was ₹3,00,000, of which ₹2,40,000 was used during the year and ₹20,000 was found unnecessary. Compute the closing provision and show the reconciliation.

Show the solution

Past event: sale of goods with warranty. Present obligation exists, outflow is probable for a large population, and a reliable estimate is possible from experience. Make a provision.
Use expected value for the population: (90% × 0) + (6% × 5%) + (4% × 20%) = 0.30% + 0.80% = 1.10% of sales.
Addition for current year sales = 1.10% × ₹2,00,00,000 = ₹2,20,000.
Reconciliation: Opening ₹3,00,000 + Additions ₹2,20,000 − Used ₹2,40,000 − Unused reversed ₹20,000 = Closing ₹2,60,000.
Journal for the addition: Statement of Profit and Loss Dr ₹2,20,000 to Provision for warranty ₹2,20,000.
Journal for the reversal: Provision for warranty Dr ₹20,000 to Statement of Profit and Loss ₹20,000.
Net charge to the Statement of Profit and Loss = ₹2,20,000 − ₹20,000 = ₹2,00,000. The ₹2,40,000 used is charged against the provision, not to the Statement of Profit and Loss again.
Disclosure: nature (warranty on goods sold), expected outflow within one year, uncertainty (actual defect rates may differ).

Answer: Closing provision is ₹2,60,000: opening ₹3,00,000 + additions ₹2,20,000 − used ₹2,40,000 − unused reversed ₹20,000. The additions figure of ₹2,20,000 is 1.10% of sales; the net charge to the Statement of Profit and Loss is ₹2,00,000.

Example 2

At the balance sheet date, a company has these items: (a) a customer has filed a suit for ₹8,00,000 for damages; lawyers say it is probable the company will lose and the likely amount is ₹5,00,000; (b) a guarantee given for a subsidiary's loan of ₹10,00,000, and the subsidiary is doing well; (c) a claim of ₹3,00,000 filed by the company against a supplier, and it is probable that it will succeed. State the treatment of each.

Show the solution

Item (a): Past event is the alleged damage. Present obligation is probable on legal advice, outflow is probable, and a reliable estimate of ₹5,00,000 exists. All three conditions are met, so provide ₹5,00,000.
Journal for (a): Statement of Profit and Loss Dr ₹5,00,000 to Provision for litigation ₹5,00,000. Disclose nature, timing uncertainty and the uncertainty in the amount.
Item (b): The guarantee is a possible obligation that depends on default by the subsidiary. Outflow is not probable. No provision. Disclose a contingent liability of ₹10,00,000 with a brief description and financial effect.
Item (c): This is a contingent asset. It is never recognised. Because inflow is probable, disclose a brief description and the estimated financial effect of ₹3,00,000 in the notes.

Answer: (a) Provide ₹5,00,000. (b) Disclose contingent liability of ₹10,00,000, no provision. (c) No recognition; disclose contingent asset of ₹3,00,000 as the inflow is probable.

Exam tips

Always write the three recognition conditions in one line before concluding. Examiners award marks for the test, not only for the answer.
In RTP and MTP style problems, read for traps: future losses, board decisions without communication, and unquantifiable claims. Each points to no provision or disclosure only.
Draw the reconciliation table for every class of provision, even when the question gives only a few numbers.
Where a case has several items, answer in a numbered list with the item, treatment and amount. This is easy to mark and easy for you to check.
In MCQs, two-mark questions often ask for a final figure such as the closing provision or the amount disclosed. Compute expected value carefully and check you included additions and reversals with the right signs.

Practice questions from AS 29 (Revised) Provisions, Contingent Liabilities and Contingent Assets

Disclosures and Practical Problems in AS 29 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateRecognition as Expense, Disclosures and Practical Problems

Disclosures and Practical Problems in AS 29: frequently asked questions

What disclosures does AS 29 require for provisions?

For each class of provision you give the opening balance, additions, amounts used, unused amounts reversed and the closing balance. You also describe the nature of the obligation, the expected timing of outflows, the main uncertainties and any expected reimbursement.

How do I decide between provision and contingent liability?

Provide if there is a present obligation from a past event, outflow is probable and a reliable estimate exists. If the obligation is only possible, or the outflow is not probable or cannot be estimated, disclose a contingent liability. If the outflow is remote, do nothing.

Are comparative figures needed in the AS 29 reconciliation?

AS 29 does not require comparative information for the provision reconciliation. Schedule III presentation rules for the balance sheet and the Statement of Profit and Loss still apply separately.

Can a contingent asset ever be recognised?

Not while it is contingent. If realisation of the income becomes virtually certain, the asset is no longer contingent and is recognised in the period of the change. Until then you only disclose it when the inflow is probable.