Skip to content

CA Intermediate · Advanced Accounting · AS 29 (Revised) Provisions, Contingent Liabilities and Contingent Assets

Narmada Foods Ltd. has a present obligation, for which a provision is required, expected to cost Rs 12 lakh. Its insurer has confirmed that it is virtually certain to reimburse Rs 9 lakh of this. How should the company present this in its financial statements?

Recognise a provision of Rs 12 lakh and a separate reimbursement asset of Rs 9 lakh. Under AS 29, a reimbursement that is virtually certain is treated as a separate asset and not netted off in the balance sheet; the asset cannot exceed the provision.

  1. AProvision of Rs 3 lakh only, with no separate reimbursement
  2. BProvision of Rs 12 lakh and a separate reimbursement asset of Rs 9 lakhCorrect
  3. CProvision of Rs 12 lakh, and the reimbursement is a contingent asset disclosed in notes
  4. DProvision of Rs 9 lakh, being the amount the insurer does not cover

Explanation

When reimbursement is virtually certain, it is recognised as a separate asset, not netted against the provision in the balance sheet. The provision stays at the full Rs 12 lakh, and the asset is capped at the provision amount. In the statement of profit and loss, the expense may be shown net of reimbursement, but the balance sheet does not net them.

Did you get it right without looking?

One question tells you little. A timed set on AS 29 (Revised) Provisions, Contingent Liabilities and Contingent Assets shows your real accuracy, how long you take and where you lose marks.

Practise AS 29 (Revised) Provisions, Contingent Liabilities and Contingent AssetsFree diagnostic mock

More AS 29 (Revised) Provisions, Contingent Liabilities and Contingent Assets questions