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

Kaveri Pharma Ltd has a present obligation from a past event for a product liability matter. An outflow is probable, but the range of outcomes is so wide that no sufficiently reliable estimate of the amount can be made. Which treatment follows Ind AS 37?

It is a contingent liability and is not recognised as a provision. Although a present obligation exists and an outflow is probable, Ind AS 37 requires a sufficiently reliable estimate for recognition. Without one, the obligation is only disclosed.

  1. ARecognise a provision at the lowest conceivable amount
  2. BDo not recognise a provision; treat it as a contingent liability because the recognition criteria are not metCorrect
  3. CRecognise a provision at the highest conceivable amount
  4. DRecognise a contingent asset of equal amount

Explanation

A present obligation that does not meet the recognition criteria, because a sufficiently reliable estimate of the amount cannot be made, is a contingent liability. It is not recognised as a provision. Options A and C wrongly recognise a provision without a reliable estimate. Option D has no basis, since the item is a liability and not an asset.

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