Skip to content

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

Under Ind AS 37, Aravali Pharma Ltd is sued by a former distributor. Management concludes that a present obligation exists, but it is not probable that an outflow of resources will be required. What is the correct treatment?

The item is a contingent liability and is not recognised as a liability. Although a present obligation exists, an outflow of economic benefits is not probable, so the Ind AS 37 recognition criteria for a provision are not met.

  1. ARecognise a provision at the claim amount
  2. BIt is a contingent liability, not recognised as a liabilityCorrect
  3. CRecognise a contingent asset
  4. DRecognise a provision at half the claim amount

Explanation

A present obligation for which an outflow is not probable does not meet the recognition criteria. Ind AS 37 therefore calls it a contingent liability, which is not recognised as a liability. Options A and D wrongly recognise a provision when the outflow is not probable.

Did you get it right without looking?

One question tells you little. A timed set on Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets shows your real accuracy, how long you take and where you lose marks.

Practise Ind AS 37 Provisions, Contingent Liabilities and Contingent AssetsFree diagnostic mock

More Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets questions