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

Under Ind AS 37, when the effect of the time value of money is material, a provision is measured at:

When the time value of money is material, the provision is stated at the present value of the expenditure expected to settle the obligation, using a pre-tax discount rate that reflects current market assessments and risks specific to the liability. Undiscounted amounts are used only if discounting is immaterial.

  1. AThe undiscounted amount expected to be paid
  2. BThe present value of the expenditure expected to be required to settle the obligationCorrect
  3. CThe maximum possible amount of the settlement
  4. DThe historical cost of the asset giving rise to the obligation

Explanation

Where the time value of money is material, the provision is the present value of the expected expenditure, using a pre-tax discount rate reflecting current market assessments of the time value of money and risks specific to the liability. Undiscounted measurement applies only when the effect is not material.

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