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CMA Intermediate · Corporate Accounting and Auditing · Provisions, Contingent Liabilities and Contingent Assets (Ind AS 37)

Sagar Textiles Ltd has a pending purchase contract for raw cotton with Kisan Traders under which neither party has yet performed any obligation, and the contract is not onerous. How does Ind AS 37 treat it?

The contract is outside Ind AS 37's scope because it is an executory contract that is not onerous. The Standard excludes such contracts unless they are onerous, so no provision, contingent liability or contingent asset arises from it under this Standard.

  1. AOutside the scope of Ind AS 37 as an executory contract that is not onerousCorrect
  2. BWithin scope; a provision is recognised for the full contract value
  3. CWithin scope; disclosed as a contingent liability for the contract value
  4. DWithin scope; recognised as a contingent asset

Explanation

The scope paragraph excludes provisions, contingent liabilities and contingent assets resulting from executory contracts, except where the contract is onerous. Since this contract is not onerous, Ind AS 37 does not apply, so no provision or contingent liability is made under it.

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