Ind AS 37 – Provisions, Contingent Liabilities

Objectives and Scope – Ind AS 37

Objectives and Scope – Ind AS 37  Introduction to Ind AS 37 Ind AS 37 Provisions, contingent liabilities and contingent assets outlines the accounting for provisions (liabilities of uncertain timing or amount), together with contingent assets (possible assets) and contingent liabilities (possible obligations)Provisions are measured at the best estimate (including risks and uncertainties) of the expenditure required to settle the present obligation and reflect the present value of expenditures required to settle the obligation when the time value of money is material Objectives of IND AS 37: The objectives of this Standard are to ensure that appropriate recognition criteria is applied to provisions, contingent liabilities …
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Provisions – Ind AS 37

Provisions – Ind AS 37 What is a Provision? Provision is a liability of uncertain timing or amount The word “uncertain” is very important here, because if timing and amount are certain or almost certain, then you don’t deal with the provision but with a payable or an accrual To understand provisions better, let’s break down the definition of a liability in Ind AS 37A liability is a present obligation arising from past event that is expected to be settled by an outflow of economic benefits from an entityIn other words, if there is no past event, then there is no liability and no provision should be recognized. Past event can create two types of obligation: Legal obligation that arises …
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Contingent Liability & Contingent Asset – Ind AS 37

Contingent Liability & Contingent Asset – Ind AS 37 What is a contingent liability? A contingent liability isa possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; ora present obligation that arises from past events but is not recognized becauseit is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; orthe amount of the obligation cannot be measured with sufficient reliability How to deal in books / Financial Statement? A contingent …
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Measurement of Provision – Ind AS 37

Measurement of Provision – Ind AS 37 The amount of the provision should be measured at the best estimate of the expenditures required to satisfy the obligation at the end of the reporting periodAs you can see, here’s some judgment and estimates involved. Management should really incorporate all available information in their estimates, and they must not forget about:Risks and uncertainties (like inflation)Time value of money (discounting when the settlement is expected in the long-term future)Some probable future events, etcThere are 2 basic methods of measuring a provisionExpected value method: You would use this method when you have a range of possible outcomes …
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Change in Provisions and Use of Provisions – Ind AS 37

Change in Provisions and Use of Provisions – Ind AS 37 Change in Provisions Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimateIf it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized as borrowing cost Use of Provisions A provision shall be used only for expenditures for which the provision was originally recognized Only expenditures that …
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Disclosures – Ind AS 37

Disclosures – Ind AS 37 For Provisions For each class of provision, an entity shall disclosethe carrying amount at the beginning and end of the periodadditional provisions made in the period, including increases to existing provisionsamounts used (ie incurred and charged against the provision) during the periodunused amounts reversed during the period; andthe increase during the period in the discounted amount arising from the passage of time and the effect of any change in the discount rate An entity shall disclose the following for each class of provisiona brief description of the nature of the obligation and the expected timing of any resulting …
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Appendix to Ind AS 37

Appendix to Ind AS 37 Appendix A Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds The purpose of decommissioning, restoration and environmental rehabilitation funds, hereafter referred to as ‘decommissioning funds’ or ‘funds’, is to segregate assets to fund some or all of the costs of decommissioning plant (such as a nuclear plant) or certain equipment (such as cars), or in undertaking environmental rehabilitation (such as rectifying pollution of water or restoring mined land), together referred to as ‘decommissioning’ Contributions to these funds may be voluntary or required by regulation or law It provides guidance onhow a contributor accounts for its interest in …
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Impact of COVID 19 on Ind AS 37

Impact of COVID 19 on Ind AS 37 Onerous Contract Onerous contracts are those contracts for which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Unavoidable costs under a contract are the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. As a result of COVID -19, some contracts may become onerous for reasons such as increase in cost of material / labour, etc. Management should consider whether any of its …
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