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

Kaveri Infra Ltd is defendant in three matters at the reporting date. Matter 1: present obligation, outflow probable, amount reliably estimable. Matter 2: present obligation, outflow probable, but no sufficiently reliable estimate can be made. Matter 3: it is yet to be confirmed whether any present obligation exists. Which classification is correct under Ind AS 37?

Matter 1 is a provision as all recognition conditions are met. Matter 2 is a contingent liability because a present obligation without a sufficiently reliable estimate fails recognition. Matter 3 is a contingent liability because it is only a possible obligation whose existence is yet to be confirmed.

  1. AMatter 1 provision; Matter 2 provision; Matter 3 provision
  2. BMatter 1 provision; Matter 2 contingent liability; Matter 3 contingent liabilityCorrect
  3. CMatter 1 contingent liability; Matter 2 contingent liability; Matter 3 provision
  4. DMatter 1 provision; Matter 2 provision; Matter 3 contingent liability

Explanation

Matter 1 meets all conditions: present obligation, probable outflow, reliable estimate, so it is a provision. Matter 2 is a present obligation that fails recognition because no reliable estimate can be made, so it is a contingent liability. Matter 3 is a possible obligation, hence contingent. Options A and D wrongly provide for Matter 2.

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