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

Under Ind AS 37, a transaction that meets the definition of a provision is recognised as a liability only when certain conditions are met. Which set correctly describes what Ind AS 37 says about provisions in relation to the outflow of resources?

A provision is a present obligation where it is probable that an outflow of resources embodying economic benefits will be required to settle it, and where a reliable estimate can be made. Possible obligations and intentions about future spending do not qualify for recognition.

  1. AProvisions are present obligations for which it is probable that an outflow of resources embodying economic benefits will be required, and a reliable estimate can be madeCorrect
  2. BProvisions are possible obligations for which an outflow is merely possible
  3. CProvisions are any obligations whose amount is certain
  4. DProvisions are recognised whenever management intends to incur future expenditure

Explanation

Ind AS 37 states that provisions are recognised as liabilities, assuming a reliable estimate can be made, because they are present obligations and it is probable that an outflow of resources embodying economic benefits will be required to settle them. Possible obligations are contingent liabilities. Management intention alone does not create a present obligation.

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