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

Himalaya Pharma Ltd faces four separate matters at the reporting date. (1) A present obligation, outflow probable, reliably estimated at Rs 40 lakh. (2) A present obligation, outflow not probable. (3) A possible obligation whose existence depends on a pending court verdict. (4) A present obligation, outflow probable, but no reliable estimate possible. How many of these are contingent liabilities, not recognised as liabilities?

Three matters are contingent liabilities: the present obligation with unlikely outflow, the possible obligation awaiting a verdict, and the present obligation lacking a reliable estimate. Only the first matter, with probable outflow and a reliable estimate of Rs 40 lakh, is recognised as a provision.

  1. AOne
  2. BTwo
  3. CThreeCorrect
  4. DFour

Explanation

Matter 1 meets all criteria and is a provision. Matter 2 is a present obligation failing the probable-outflow test, so it is a contingent liability. Matter 3 is a possible obligation, a contingent liability. Matter 4 is a present obligation lacking a reliable estimate, a contingent liability. So three are contingent liabilities; counting only possible obligations (one) would miss the present obligations that fail recognition.

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