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

Ind AS 37 notes that, in a general sense, all provisions are contingent. Meghna Textiles Ltd's finance head asks why provisions are still recognised while items called 'contingent' are not. Which explanation is consistent with the Standard?

Provisions are uncertain in timing or amount, but Ind AS 37 limits the word 'contingent' to liabilities and assets whose existence will be confirmed only by uncertain future events not wholly within the entity's control, and to liabilities failing recognition criteria. Provisions are present obligations, so they are recognised.

1. AProvisions are recognised because their timing or amount is certain, whereas contingent items are uncertain
2. BWithin the Standard, 'contingent' is reserved for liabilities and assets whose existence will be confirmed only by uncertain future events not wholly within the entity's control, so provisions are treated separately even though their timing or amount is uncertainCorrect
3. CProvisions are recognised only when the entity has a possible obligation, while contingent liabilities are present obligations
4. DProvisions and contingent liabilities are the same, and recognition depends only on management's choice