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

Gomti Foods Ltd has a present obligation from a past event and it is probable that an outflow of resources embodying economic benefits will be required. A reliable estimate of the amount can be made. What is the correct treatment under Ind AS 37?

Gomti should recognise a provision. Ind AS 37 treats present obligations as provisions, recognised as liabilities, when an outflow of economic benefits is probable and a reliable estimate can be made. All conditions are met, so mere disclosure would be incorrect.

  1. ADisclose as a contingent liability only
  2. BRecognise as a provisionCorrect
  3. CDisclose as a contingent asset
  4. DRecognise only when the cash outflow occurs

Explanation

Provisions are recognised as liabilities when they are present obligations, an outflow is probable and a reliable estimate can be made. All three conditions are satisfied here. Disclosure only as a contingent liability applies when criteria are not met.

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