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AS 29 Provisions, Contingent Liabilities and Contingent Assets

AS 29 Provisions, Contingent Liabilities and Contingent Assets Revised Summary Notes. In the previous articles, we have given AS 13 Accounting For Investments and AS 14 Accounting For Amalgamation. Today we are providing the complete details of accounting standard 29 Provisions, Contingent Liabilities and Contingent Assets.  You can also download best summary notes of accounting standard 29 by ICAI at the end of this article. This notes is also useful for IPCC and CA Final students.

AS 29 Provisions, Contingent Liabilities and Contingent Assets

AS 29 Provisions, Contingent Liabilities and Contingent Assets

The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. The objective of this Standard is also to lay down appropriate accounting for contingent assets

Definitions

The following terms are used in this Standard with the meanings specified:

A provision is a liability which can be measured only by using a substantial degree of estimation.

A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation.

A contingent liability is:

(a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or

(b) a present obligation that arises from past events but is not recognised because:

  • it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
  • a reliable estimate of the amount of the obligation cannot be made.

A contingent asset is a possible asset that arises from past events the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise.

Present obligation – an obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not.

Possible obligation – an obligation is a possible obligation if, based on the evidence available, its existence at the balance sheet date is considered not probable.

A restructuring is a program that is planned and controlled by management and materially changes either: (a) the scope of a business undertaken by an enterprise; or (b) the manner in which that business is conducted

Provision

A provision is a liability which can be measured only by using a substantial degree of estimation.

Treatment : A provision should be recognized when:

  • An enterprise has a present obligation as a result of past event
  • It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
  • A reliable estimate can be made of the amount of the obligation.

Measurement

Best Estimate :

The amount recognized as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value.

The estimates of outcome and financial effect are determined by the judgment of the management of the enterprise, supplemented by experience of similar transactions and, in some cases, reports from independent experts. The evidence considered includes any additional evidence provided by events after the balance sheet date.

The provision is measured before tax; the tax consequences of the provision, and changes in it are dealt with under AS 22, Accounting for Taxes on Income.

Contingent Liability :

1. A contingent liability is

  • A possible obligation that arises from past events
  • And; existence of which will be confirmed by the occurrence or non-occurrence of future events not wholly within the control of the enterprise

2. A contingent liability is

  • A present obligation that arises from past events
  • And; not recognized because of lower probability of outflow of resources or non- availability of reliable estimate

Possible Obligation: An obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered Not Probable.

Treatment: An enterprise should not recognize a contingent liability. It should be disclosed in financial statements unless the possibility of outflow is remote.

Contingent Assets :

A contingent assets is a possible asset that arises from past events of the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.

Treatment: An enterprise should not recognize a contingent asset.

An enterprise should not be disclosed in financial statements. It may be disclosed in the report of approving authority, where an inflow is probable.

Disclosures :

  • The enterprise should disclose for each class of provision:
  • the carrying amount at the beginning & end of the period
  • additional provision made during the period
  • amount used during the period
  • amount reversed during the period
  • nature of obligation & and expected time of incurrence
  • indication about the uncertainties attached to the provisions

The enterprise should disclose for each class of contingent liabilities:

  • an estimate of its financial effects
  • an indication of the uncertainties relating to any outflow
  • the possibility of any reimbursement

Where any of the information required is not disclosed because it is not practicable to do so, that fact should be stated.

In extremely rare cases, disclosures can be expected to seriously harm the enterprise in a dispute with other parties. In such cases, instead of detailed information, general nature of dispute together with the reason of non-disclosures should be disclosed.

Click Here to download AS 29 notes issued by ICAI.

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