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

Kaveri Engineering Ltd has a present obligation arising from a past event. Settlement is considered possible but not probable, and the amount cannot be measured sufficiently reliably. How does Ind AS 37 classify this item?

It is a contingent liability. Ind AS 37 includes within contingent liabilities those present obligations that fail the recognition criteria, because an outflow is not probable or a sufficiently reliable estimate cannot be made. Having a present obligation alone does not make it a provision.

  1. AA provision, because a present obligation exists
  2. BA contingent liability, because it is a present obligation that does not meet the recognition criteriaCorrect
  3. CA contingent asset, because settlement is uncertain
  4. DAn accrued liability that must be recognised at the best guess of the amount

Explanation

Contingent liabilities include present obligations that do not meet the recognition criteria, either because an outflow is not probable or because a sufficiently reliable estimate cannot be made. Here both failures exist. A provision requires a present obligation plus a probable outflow plus a reliable estimate, so a present obligation alone is insufficient.

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