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Accountancy
Sir ca any one explain question meaning in simpler terms
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Pandusml VOhk
In the first para they talk about the concept of prudence. We have to provide all anticipated expenses and losses. This is one of the principles of accounting. In the second para they talk about accrual and other technical points. They are saying that you have to provide for interest as long as you hold the principal amount irrespective of what the terms of loan say. This is logical as well. You can hold the money of a creditor and deny him of his interest. However, if the creditor waives off the interest then the company may not make provision for the interest overdue. But here the claims by creditors exists and the company should estimate an amount of provision for interest on the basis of circumstances of each case. So the company is not correct when it has not made provision for interest overdue. You may mark this as best answer if you are satisfied
XYZ limited does not have enough cash because most of its assets are stuck due to legal cases. That means say a company has 10 lacs of debtors but they are not being paid due to an ongoing court case. Moreover the company has overdue loan and interest thereon. Here the company has only transferred the amount of interest due to creditors till the due date but the creditors demand more interest over and above the due date. Their claims are of varying amounts and the company has no legal obligation to pay these amounts. Moreover, the company is not able to ascertain the amount of interest properly. So it has disclosed a note and termed it as contingent liability. Is the company correct?
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