IND AS 37 - Provisions, Contingent Liabilities and Contingent Assets

Question 1

Which one of the following represents an appropriate discount rate for measuring a provision based on Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets?

1: market yields on national government bonds

2: market yields on high-quality corporate bonds

3: pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability

4: pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the entity

Answer 1

pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability

Question 2

As at 31 March 20X1 (reporting date), ABC Ltd is involved in a legal dispute with one of it®s supplier in relation to the early termination of the exclusive licence agreement between the two companies. The supplier seeks damages of Rs. 50 crore. The directors of ABC believe that, they will be successful in defending this claim. ABC®s lawyers have advised that there is 90% chances that the entity would not be made liable for this claim. In accordance with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets, which one of the following is the most appropriate option for ABC while preparing its financial statements for 31 March 20X1?

1: Neither recognition of provision nor disclosure of contingent liability is required

2: Disclose information about the possible liability as a contingent liability

3: Recognise a provision for the best estimate of the obligation to the supplier

4 : Recognise a contingent liability for the best estimate of the obligation to the supplier

Answer 2

Disclose information about the possible liability as a contingent liability

Question 3

Which one of the following is a correct statement in relation to provisions and contingencies?

1: An item of a contingent nature may be recognised, but not disclosed, in the body of the financial statements

2: Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets applies to provisions to perform land rehabilitation activity

3 : Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets applies to contingent liabilities and contingent assets of insurers that rest from insurance contracts

4 : A present obligation exists in all circumstances where a company may have some choice in whether or not to make a future sacrifice of economic benefits in settlement of an obligation

Answer 3

Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets applies to provisions to perform land rehabilitation activity

Question 4

As per Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets”, where measurement uncertainty exists, which one of the following methods is NOT an appropriate valuation for a provision based on Indian Accounting Standards?

1: the mid-point of a range of equally likely outcomes of expenditure

2: no valuation as no provision should be recognised where measurement uncertainty exists

3: the obligation is estimated by weighting all possible outcomes by their associated probabilities i.e. ‘expected value’ method

4: the most likely amount expected to represent a best estimate, where there is a single obligation

Answer 4

No valuation as no provision should be recognised where measurement uncertainty exits