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

Narmada Infra Ltd has a present obligation from a past event. The probability of an outflow is assessed at 35%, so an outflow is not probable. Which statement is correct under Ind AS 37?

The obligation is a contingent liability. A present obligation is recognised as a provision only if an outflow is probable and a reliable estimate exists. With an outflow that is not probable, the criteria fail, so the item is disclosed and not recognised.

  1. AA provision is recognised because a present obligation exists
  2. BThe obligation is a contingent liability, since it is not probable that an outflow of resources will be requiredCorrect
  3. CA contingent asset is recognised
  4. DThe obligation is a provision only if its amount is large

Explanation

Ind AS 37 describes contingent liabilities to include present obligations that fail the recognition criteria because an outflow is not probable. A present obligation alone is not enough for a provision. Option A ignores the probability criterion. Size of the amount does not decide recognition.

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