Skip to content

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

Meghdoot Pharma Ltd faces a claim. Its legal counsel concludes that the entity probably has no present obligation, and that the claim will be confirmed only if a future court ruling goes against it. Which description matches how Ind AS 37 characterises a provision as against this item?

A provision is recognised as a liability because it is a present obligation with a probable outflow and a reliable estimate. Meghdoot's claim is only a possible obligation that a future ruling will confirm, so it is a contingent liability and is not recognised in the balance sheet.

  1. AA provision is recognised as a liability because it is a present obligation with probable outflow and reliable estimate, whereas this item is a possible obligation, not recognised as a liabilityCorrect
  2. BBoth are recognised as liabilities, but the claim is measured at nil
  3. CA provision is a possible obligation, while this claim is a present obligation
  4. DBoth are disclosed only and neither is recognised

Explanation

Ind AS 37 states that provisions are recognised as liabilities, assuming a reliable estimate can be made, because they are present obligations with a probable outflow. Contingent liabilities are not recognised because they are possible obligations or present obligations that fail the criteria. The claim here, confirmed only by a future ruling, is a possible obligation and so is not recognised.

Did you get it right without looking?

One question tells you little. A timed set on Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets shows your real accuracy, how long you take and where you lose marks.

Practise Ind AS 37 Provisions, Contingent Liabilities and Contingent AssetsFree diagnostic mock

More Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets questions