Provision and Contingent liability. [May 2018; Nov, 2019, 4 Marks] [Dec. 2022, 4 Marks]
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Theoretical FrameworkQ-3 | Contingent Assets and Contingent LiabilitiesQuestion 4971 of 110
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Provision and Contingent liability
Provision Contingent liability
Provision is a present liability of uncertain
amount, which can be measured reliably by
using a substantial degree of estimation.
A Contingent liability is a possible
obligation that may or may not crystallize
depending on the occurrence or non-
occurrence of one or more uncertain future
events.
A provision meets the recognition
criteria.
A contingent liability fails to meet the
same.
Provision is recognized when (a) an
enterprise has a present obligation arising
from past events; an outflow of resources
embodying economic benefits is probable,
and (b) a reliable estimate can be made of
the amount of the obligation.
Contingent liability includes present
obligations that do not meet the
recognition criteria because either it is not
probable that settlement of those
obligations will requirement outflow of
economic benefits, or the amount cannot
be reliably estimated.
If the management estimates that it is
probable that the settlement of an
obligation will result in outflow of
economic benefits, it recognises a
provision in the balance sheet.
If the management estimates, that it is less
likely that. any economic benefit will
outflow from the firm to settle the
obligation, it discloses the obligation as a
contingent liability.
About This Chapter: Theoretical Framework
Paper
Paper 1: Accounting
Weightage
5-10%
Key Topics
Policies, Standards (Ind AS), Vocabulary
This chapter covers Policies, Standards (Ind AS), Vocabulary and is part of Paper 1: Accounting in the CA Foundation exam.
View Official ICAI SyllabusExam Strategy Tip
This topic carries 5-10% weightage. Focus on understanding core concepts rather than memorizing.
Key Concepts to Understand
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