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Corporate Accounting and Financial Management · Accounting Standards

AS 29 Provisions, Contingent Liabilities and Contingent Assets

Updated 11 October 2026 · Fact-checked

AS 29 says when a company must book a provision, only disclose a contingent liability, or ignore a contingent asset. Check three things: a present obligation from a past event, probable outflow, and reliable estimate. All three present means provision. Otherwise disclose or ignore.

Understand AS 29 and Other Key Standards

Start with one question: does the company owe something today because of something that already happened? If yes, and money will probably have to go out, and you can estimate how much, you book a provision. It is a liability of uncertain timing or amount, so it sits in the books.

If the obligation is only possible, or the outflow is not probable, or you cannot estimate it reliably, it is a contingent liability. You do not book it. You disclose it in the notes, unless the chance of outflow is remote. A contingent asset is a possible gain that depends on an uncertain future event. You do not recognise it. You disclose it only when an inflow is probable.

The idea of a present obligation from a past event matches the Conceptual Framework. It says an entity has no present obligation until it has obtained benefits or taken an action that could require a transfer. A signed contract to pay salary is not yet an obligation until the service is received. That is why future operating losses never get a provision.

The other standards in this topic are short summaries. AS 4 deals with events after the balance sheet date. AS 5 deals with prior period items, extraordinary items and changes in accounting policy. AS 11 covers foreign exchange. AS 13 covers investments. AS 15 covers employee benefits. AS 26 covers intangible assets. Learn the core rule of each, since the questions are usually short theory or a small case.

As per the ICAI applicability table, Level I entities comply with all standards in full. Non-company entities at Levels II to IV get some exemptions. For example, AS 29 paragraphs 66 and 67 disclosures are not applicable to them, while AS 3 is not applicable to them at all.

Key rules to remember

Provision test
Present obligation from past event + outflow probable + reliable estimate → Provision
All three conditions must hold together. If any one fails, move to the contingent liability test.
Contingent liability
Possible obligation, or present obligation not meeting recognition criteria → Disclose (not recognise)
No disclosure if the chance of outflow is remote.
Contingent asset
Possible inflow depending on uncertain event → Do not recognise; disclose only if inflow is probable
If the gain is virtually certain, it is no longer a contingent asset and is recognised as an asset.
Restructuring and future losses
Future operating losses → No provision
There is no present obligation from a past event.
Level I applicability
Level I entities → comply in full with all Accounting Standards
Level II to IV non-company entities have relaxations, such as AS 3 not applicable to them.
AS 11 basic rule
Foreign currency transaction recorded at exchange rate on transaction date
Monetary items are reported at the closing rate at the balance sheet date. Non-monetary items at historical cost use the rate on the transaction date.

How to solve AS 29 and Other Key Standards questions

Use the same sequence for any AS 29 case question, then add the other standards when the facts point to them.

  1. 1Identify the item and the past event. Ask what has already happened by the balance sheet date.
  2. 2Test for a present obligation. A legal or constructive duty today counts. A future intention does not.
  3. 3Test the outflow. Is it probable, meaning more likely than not? If only possible, it is a contingent liability.
  4. 4Test for a reliable estimate. If you cannot estimate, treat it as a contingent liability and disclose it.
  5. 5State the treatment: provide, disclose, or ignore. For gains, never recognise a contingent asset.
  6. 6Quantify. Use the best estimate for a provision. Pass the entry if asked, such as Dr Profit and Loss, Cr Provision.
  7. 7Conclude in one line naming the Standard, for example 'Hence, as per AS 29, a provision of ₹X is to be recognised.'

Quickest way: Three-gate filter

When to use it: Use this for short cases where you have under five minutes to classify an item.

  1. Gate 1: Is there a present obligation from a past event? No means contingent liability or nothing.
  2. Gate 2: Is the outflow probable? No means disclose only, or nothing if remote.
  3. Gate 3: Can you estimate reliably? No means disclose only.
  4. Passing all three gates means provision. Write the amount and the one-line reason.
  5. For any gain, answer: not recognised; disclose only if probable.

Common mistakes in AS 29 and Other Key Standards

  • Creating a provision for future operating losses

    Students think any expected loss must be provided for.

    Fix: Check for a past event. Future losses have none, so no provision is made.

  • Recognising a contingent asset because a court case looks favourable

    Students apply prudence to liabilities but forget it works the other way for gains.

    Fix: Do not recognise contingent assets. Disclose only when inflow is probable, and recognise only when realisation is virtually certain.

  • Treating every disputed claim as a provision

    The word 'claim' suggests a liability.

    Fix: Judge probability and estimate. If payment is only possible, it is a contingent liability and goes to notes.

  • Disclosing remote contingent liabilities

    Students believe more disclosure is always safer.

    Fix: If the chance of outflow is remote, no disclosure is needed.

  • Mixing up provision and contingent liability definitions in theory answers

    Both involve uncertainty, so the difference is learned loosely.

    Fix: Write the contrast: provision is recognised in the books as a present obligation with probable outflow and reliable estimate. Contingent liability is only disclosed.

  • Saying AS 3 applies to all entities

    Students recall that Level I entities follow all standards and stop there.

    Fix: Remember that the ICAI table shows AS 3 as not applicable to Level II, III and IV non-company entities.

Worked examples

Example 1

At the balance sheet date, Kaveri Textiles Ltd faces a customer's damages suit. The company's lawyers say it is probable that the company will lose and pay ₹8,00,000. Another suit by a supplier, where payment is only possible, claims ₹5,00,000. State the treatment under AS 29.

Show the solution
  1. Suit 1: The past event is the alleged breach. A present obligation exists as the lawyers expect a loss.
  2. Outflow is probable and the amount is estimated at ₹8,00,000, so all three conditions are met.
  3. Suit 2: Outflow is only possible, not probable. It is not a provision.
  4. Suit 2 is not remote, so it is disclosed as a contingent liability.

Answer: Recognise a provision of ₹8,00,000 (Dr Profit and Loss, Cr Provision). Disclose ₹5,00,000 as a contingent liability in the notes without booking it.

Example 2

Arjun Pharma Ltd has filed a claim for ₹12,00,000 against an insurer for fire damage. The insurer has not accepted it and the outcome is uncertain. The company also expects operating losses of ₹3,00,000 next year. How should it treat both items?

Show the solution
  1. The insurance claim is a possible inflow depending on an uncertain future event, so it is a contingent asset.
  2. A contingent asset is not recognised. Inflow is not yet probable, so there is not even disclosure.
  3. The expected operating loss relates to the future, with no past event creating an obligation.
  4. So no provision can be made for the operating loss.

Answer: Do not recognise the ₹12,00,000 claim, and disclose it only if inflow becomes probable. Make no provision for the ₹3,00,000 future operating loss.

Exam tips

  • Write the three provision conditions in every theory answer. Examiners look for them.
  • In case questions, end with a firm conclusion: provision, contingent liability disclosure, or no entry.
  • For provision versus contingent liability, give a two-column style contrast in bullet points.
  • For AS 4, AS 5, AS 11, AS 13, AS 15 and AS 26, prepare a single-line core rule for each. These usually appear as short notes.
  • Mention the entity level when a question refers to non-company entities. Use the ICAI applicability table.

Practice questions from Accounting Standards

AS 29 and Other Key Standards in other exams

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

AS 29 and Other Key Standards: frequently asked questions

What is the difference between a provision and a contingent liability?

A provision is recognised in the books because there is a present obligation, a probable outflow and a reliable estimate. A contingent liability is only a possible obligation, or fails one of the tests, so it is disclosed in the notes.

Can a contingent asset be recognised?

No. A contingent asset is not recognised. It is disclosed only when an inflow is probable. If realisation is virtually certain, it is no longer contingent and is recognised as an asset.

Is AS 29 applicable to all entities?

Level I entities comply in full. For Level II, III and IV non-company entities, AS 29 applies with a disclosure exemption: paragraphs 66 and 67 are not applicable to them.

How much of AS 26, AS 15 and AS 11 do I need to study?

This topic needs a summary level. Know the purpose, the basic recognition or measurement rule, and the main disclosure idea for each. Expect short notes rather than long calculations.