Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, Summary

Indian Accounting Standard (Ind AS) 37 Summary

Indian Accounting Standard (Ind AS) 37, Provisions, Contingent Liabilities and Contingent Assets is applied in accounting for provisions, contingent liabilities and contingent assets, except for those resulting from executory contracts (except where the contract is onerous) and those covered by other standards.

A provision is a liability of uncertain timing or amount that arises from a past event that is expected to result in an outflow of the entity’s resources.

A contingent liability is a present obligations with uncertainties about either the probability of outflow of resources or the amount of the outflows, and possible obligations whose existence is uncertain.

A contingent asset is a possible asset whose existence is uncertain.

A provision is recognised for a legal or constructive obligation, if there is a probable outflow of resources and the amount can be estimated reliably. Probable in this context means more likely than not.

A constructive obligation arises when the entity’s actions create valid expectations of third parties that it will accept and discharge certain responsibilities.

A provision is not recognised for future operating losses.

A provision for restructuring costs is not recognised until there is a formal plan and details of the restructuring have been communicated to those affected by the plan.

Provisions are not recognised for repairs or maintenance of own assets or for self-insurance before an obligation is incurred.

A provision is recognised for a contract that is onerous.

Contingent liabilities are recognised only if they are present obligations assumed in a business combination-i.e. there is uncertainty about the outflows but not about the existence of an obligation. Otherwise, contingent liabilities are disclosed in the notes to the financial statements.

Contingent assets are not recognised in the balance sheet. If an inflow of economic benefits is probable, then details are disclosed in the notes to the financial statements.

A provision is measured at the ‘best estimate’ of the expenditure to be incurred.

Provisions are discounted if the effect of discounting is material.

A reimbursement right is recognised as a separate asset when recovery is virtually certain, capped at the amount of the related provision.

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