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

Ganga Foods Ltd faces a litigation where it is uncertain whether it has a present obligation (a possible obligation), and separately a supplier dispute where a present obligation exists, an outflow is probable and the amount is reliably estimable. Under Ind AS 37, what is the correct classification?

The litigation is a contingent liability because it is only a possible obligation, while the supplier dispute is a provision because it is a present obligation with a probable outflow and a reliable estimate. Provisions are recognised as liabilities, contingent liabilities are not.

  1. ABoth are provisions
  2. BBoth are contingent liabilities
  3. CLitigation is a contingent liability; the supplier dispute is a provisionCorrect
  4. DLitigation is a provision; the supplier dispute is a contingent liability

Explanation

The litigation is a possible obligation, so it is a contingent liability. The supplier dispute meets all criteria: present obligation, probable outflow and reliable estimate, so it is a provision recognised as a liability. Option D reverses the correct treatment.

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