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CMA Intermediate · Corporate Accounting and Auditing · Provisions, Contingent Liabilities and Contingent Assets (Ind AS 37)

Himalaya Pharma Ltd is defending a lawsuit. Legal advisers say it is yet to be confirmed whether the company has a present obligation at all, as the outcome depends on a court finding on disputed facts. How does Ind AS 37 classify this item?

It is a contingent liability. Where it has yet to be confirmed whether the entity has a present obligation that could lead to an outflow, the item is a possible obligation and is not recognised as a liability. Uncertainty about timing or amount alone is what distinguishes provisions, not existence.

  1. AProvision, because all provisions are uncertain in timing or amount
  2. BContingent liability, being a possible obligationCorrect
  3. CContingent asset, because the outcome is uncertain
  4. DProvision, provided the claim exceeds ₹1 crore

Explanation

Paragraph 13(b)(i) classes as contingent liabilities the possible obligations where it has yet to be confirmed whether there is a present obligation that could lead to an outflow. Paragraph 12 notes provisions are uncertain in timing or amount but are still present obligations. No monetary threshold appears in the text.

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