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

Kaveri Auto Ltd has a present obligation from a past event. An outflow is probable, but the matter is so complex that no sufficiently reliable estimate of the amount can be made. How does Ind AS 37 classify this item?

It is a contingent liability. Ind AS 37 describes present obligations that do not meet the recognition criteria as contingent liabilities, and this includes cases where a sufficiently reliable estimate of the amount cannot be made. A provision is recognised only when a reliable estimate is possible.

  1. AProvision, recognised at the best guess of management
  2. BContingent liability, because the recognition criteria are not metCorrect
  3. CContingent asset, because the amount is unknown
  4. DProvision, but only if the outflow exceeds the entity's net worth

Explanation

Ind AS 37 says provisions are recognised assuming a reliable estimate can be made. A present obligation for which a sufficiently reliable estimate cannot be made does not meet the recognition criteria. It is therefore a contingent liability. Option A is wrong because recognition requires a reliable estimate.

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