ICDS X -Provisions, Contingent Liabilities and Contingent Assets

Scope

      Deals with provisions, contingent liabilities and contingent assets, except those:

(i)                  Resulting from financial instruments;

(ii)                Resulting from executory contracts;

(iii)               Arising in insurance business from contracts with policy holders; and

(iv)               Covered by another ICDS.

Does not deal with:

(i)                  Recognition of revenue

The term provision is also used in the context of items such as Depreciation, impairment of assets and doubtful debts which are adjustments to the carrying amounts of assets and doubtful debts which are adjustments in the carrying amounts of assets and are not addressed in this ICDS.

 

Definitions

      Provision : is a liability which can be measured only by using a substantial degree of estimation.
      Liability: is a present obligation of the person arising from past events, the settlement of which is expected to result in an outflow from the person of resources embodying economic benefits
      Obligating event:  is an event that creates an obligation that results in a  person having no realistic alternative in settling that obligation
      Contingent Liability: is

(i)                  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 person; or

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

(a)     it is not reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation; or

(b)    a reliable estimate of the amount of the obligation cannot be made.

      Contingent Asset: is a possible asset that arises from past events 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 person.
      Executory contracts: are contracts under which neither party has performed any of its obligation or both parties have partially performed their obligation to an equal extent
      Present obligation: is an obligation if,based on the evidence available, its existence at the end of the previous year is considered reasonably certain.

 

Recognition

ICDS 10_1

 

Measurement

ICDS 10_2

 

 

Disclosure

  • Description of nature of obligation
  • Carrying amount at the beginning and end of the previous year.
  • Additional provisions/amount made including increases to existing provisions/(contingent assets/contingent liabilities)
  • Amounts used (incurred and charged against provisions) during the year.

Key difference with AS

  • AS 29 Contingent asset can be recognised when there is virtual certainty and in ICDS X it can be recognised even when there is reasonable certainty.
  • AS 29 provides for recognising losses on onerous and executory contracts, whereas ICDS ignores all onerous and executory contracts.

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