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

Under Ind AS 37, which of the following best describes a contingent liability that is NOT recognised in the balance sheet because the existence of a present obligation is yet to be confirmed?

A contingent liability includes a possible obligation whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the entity's control. Such an item is not recognised as a liability, unlike a provision, which is a present obligation with probable outflow.

  1. AA present obligation for which outflow is probable and a reliable estimate exists
  2. BA possible obligation whose existence will be confirmed only by uncertain future events not wholly within the entity's controlCorrect
  3. CAn obligation arising from a past event that is certain in amount and timing
  4. DA trade payable for goods received but not yet invoiced

Explanation

Ind AS 37 treats a possible obligation, where it has yet to be confirmed whether a present obligation exists that could lead to an outflow, as a contingent liability. The first option describes a provision, which is recognised. The last two are recognised liabilities or accruals, not contingent.

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