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

Ind AS 37 uses the word 'contingent' in a specific sense. Which of the following statements is consistent with how the Standard uses the term 'contingent liability'?

Under Ind AS 37 a contingent liability is not recognised as a liability. It is either a possible obligation whose existence is yet to be confirmed, or a present obligation that fails the recognition criteria because an outflow is not probable or the amount cannot be reliably estimated.

  1. AIt is a liability that is recognised in the balance sheet because its timing or amount is uncertain
  2. BIt is a liability that is not recognised because it is either a possible obligation, or a present obligation that does not meet the recognition criteriaCorrect
  3. CIt is any provision for which a reliable estimate has been made but payment is expected after twelve months
  4. DIt is a present obligation for which an outflow is probable and a reliable estimate can be made

Explanation

The Standard says contingent liabilities are not recognised as liabilities. They are either possible obligations, or present obligations failing the recognition criteria (outflow not probable, or no sufficiently reliable estimate). Option D describes a provision, and option A is wrong because timing or amount uncertainty alone makes a provision, which is recognised.

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