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

Under Ind AS 37, a provision is recognised as a liability only when it is a present obligation and it is probable that an outflow of resources embodying economic benefits will be required to settle it. Which additional condition, stated alongside these, must also be met?

A provision requires a present obligation, a probable outflow of economic benefits, and a reliable estimate of the amount. Without a reliable estimate the item is only a contingent liability. Court confirmation, a twelve-month settlement period or cash earmarking are not conditions under Ind AS 37 for recognising a provision.

  1. AA reliable estimate can be made of the amount of the obligationCorrect
  2. BThe obligation must be confirmed by a court judgment
  3. CThe amount must be paid within twelve months of the reporting date
  4. DThe entity must have already set aside cash for settlement

Explanation

Paragraph 13 describes provisions as liabilities recognised, assuming a reliable estimate can be made, because they are present obligations with a probable outflow. A court judgment, a twelve-month payment period or cash set aside are not recognition conditions in the standard text. The missing estimate would make the item a contingent liability.

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