Skip to content

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

Under Ind AS 37, the amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Which of the following feature of provisions is the reason that such an estimate is needed?

Provisions are uncertain in timing or amount, so they have to be measured using an estimate. Unlike contingent liabilities, whose existence depends on uncertain future events outside the entity's control, a provision is a recognised liability whose amount or timing is uncertain.

  1. AProvisions are uncertain in timing or amountCorrect
  2. BProvisions are always settled within twelve months
  3. CProvisions are determined only by the occurrence of uncertain future events outside the entity's control
  4. DProvisions are disclosed only in the notes and never recognised

Explanation

Paragraph 12 of the text states that in a general sense all provisions are contingent because they are uncertain in timing or amount. That uncertainty is why measurement requires an estimate. Option C describes contingent liabilities and assets, which are not recognised, so it is wrong.

Did you get it right without looking?

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

Practise Provisions, Contingent Liabilities and Contingent Assets (Ind AS 37)Free diagnostic mock

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