Provision, Contingent Liability and Contingent Assets

 Provision:

• A liability of uncertain timing or amount.
• A present obligation (legal or constructive) has arisen as a result of a past event (the obligating event),
• Payment is probable ('more likely than not'), and
• The amount can be estimated reliably.

Recognition of a provision:

• A provision should be recognised when:
• An entity has a present obligation (legal or constructive) as a result of a past event;
• It is probable that an outflow of resources embodying economic benefits will be required to settle the obligations; and
• A reliable estimate can be made of the amount of the obligation 

      If these conditions are not met, no provision should be recognised.

      Contingent Liability:

• A possible obligation depending on whether some uncertain future event occurs, or
• A present obligation but payment is not probable or the amount cannot be measured reliably

   

    Contingent Asset:

     An entity should not recognized a contingent asset.

     Contingent assets usually arises from unplanned or other unexpected events that give rise to the possibility of an economic benefits to the entity.

     Contingent assets are not recognized in financial statements since this may result in the recognition of income that may never be realized.

     However, when the realization of the income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. 

     A contingent asset should be disclosed, where an inflow of economic benefits is probable.

     Contingent asset are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements of the period in which the change occurs.

       Significant difference in IND AS 37 VIS-À-VIS AS 29

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[The view presented in above blog/ article is from North Pole Management LLP. We believe that the views put forward are is in sync with applicable laws & regulations prevailing at present. Any discrimination, if found by reader can be reached out to the management of the company on the email ID of contact@northpolemanagement.in 
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