Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

contigent liabulity

varun dev (student) (34 Points)

10 February 2010

what is the dif between provision and contigent liabulity,what is the treatment while making the accounts,with examples?

Reply
Follow
Share

2 Replies

ashish gupta ( student) (1922 Points)
Replied 12 February 2010

Provision is made for some future loss or expense the amount of which is not certain at the time of making the provision. it is debited in the P&L A/c.

While contigent liability is dependent on a future event the outcome of which is not known, means that can arise in future.

the main diff. is in provision the loss or expense is known though the amount is not certain but contigent liability can occur if some event happens or not.

U can wait for some other replies too.

Upgrade to CAclubindia Pro. Subscribe Now!

triumph-CMA (Chartered Accountant) (503 Points)
Replied 12 February 2010

A contingent liability is:

(a) a 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 enterprise; or

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

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

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

A provision should be recognised when:

(a) an enterprise has a present obligation as a result of a past event;

(b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

If these conditions are not met, no provision should be recognised.