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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 explains why the term 'contingent' is used for certain liabilities and assets, even though in a general sense all provisions are uncertain in timing or amount?

The term 'contingent' is used in Ind AS 37 for liabilities and assets whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the entity's control. This differs from provisions, which are uncertain only in timing or amount.

  1. ABecause their existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the entity's controlCorrect
  2. BBecause their amount can be measured reliably but payment is due after more than twelve months
  3. CBecause they arise only from legal proceedings pending before a court
  4. DBecause they relate only to obligations that the entity has already settled after the reporting date

Explanation

Paragraph 12 states that, within the Standard, 'contingent' is used for liabilities and assets that are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control. The other options introduce criteria such as litigation, a twelve-month period or settlement after the reporting date, none of which is the basis stated in the Standard.

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