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

Indus Logistics Ltd. is assessing whether to recognise a liability for a claim. Which condition set must be satisfied for a provision, as distinguished by Ind AS 37 from a contingent liability?

A provision requires a present obligation, a probable outflow of resources embodying economic benefits to settle it, and a reliable estimate of the amount. If the obligation is only possible, or the criteria are unmet, the item is a contingent liability and is not recognised.

  1. AA present obligation, probable outflow of economic benefits, and a reliable estimate can be madeCorrect
  2. BA possible obligation, probable outflow, and management intention to settle
  3. CA present obligation, possible outflow, and an estimate approved by the board
  4. DA legal dispute pending, and an estimate by lawyers regardless of probability

Explanation

Para 13(a) says provisions are recognised as liabilities, assuming a reliable estimate can be made, because they are present obligations and an outflow is probable. A possible obligation is only a contingent liability. The other options use incorrect tests such as intention or board approval.

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