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Different between the provisions and contingent liability

Accountancy

In provision, we can estimate the amount but it isn't reasonable accuracy. In contingent liability can we estimate the amount or don't the amount.


Vani

Vani

CA Foundation

2K+

26-Aug-21 11:18

243

Answers (9)

Best Answer

A contingent liability is a liability that may occur depending on the outcome of an uncertain future event. It is disclosed in footnotes with an estimated amount or just stating that there is a contingency existing For Example - A court case , if the company is reasonably sure that it will win it can show as contingent liability, if high chance of losing and amount can reasonably estimated make a provision if amount cannot be measured show as contingent liability in footnotes


roshini reddy

roshini reddy

CA Inter

1K+

26-Aug-21 11:40

Provisions is a PRESENT liability of uncertain amount, which can be measured reliably by using some estimation. A Contingent liability is POSSIBLE obligation that may or may not be needed to pay depending on the occurrence or non-occurrence of one or more uncertain events


roshini reddy

roshini reddy

CA Inter

1K+

26-Aug-21 12:05

Can you explain difference between the three with any examples?


Thread Starter

Vani

Vani

CA Foundation

2K+

26-Aug-21 12:19

Thread Starter

Vani

Can you explain difference between the three with any examples?

Provision = provision for tax, provision for doubtful debts (we can roughly make an estimate based on data available like revenue and creditors) Contingent liability = Court case we dont know we will win or not and what amount court may order if we lose, Pending investigations etc


roshini reddy

roshini reddy

CA Inter

1K+

26-Aug-21 12:34

roshini reddy

Provision = provision for tax, provision for doubtful debts (we can roughly make an estimate based on data available like revenue and creditors) Contingent liability = Court case we dont know we will win or not and what amount court may order if we lose, Pending investigations etc

Thank you, mam! And I want to differentiate between accounting concepts, accounting policies and accounting standard. Is all are basic principals


Thread Starter

Vani

Vani

CA Foundation

2K+

26-Aug-21 15:16

Thread Starter

Vani

Is all are guide us to do financial statement?

Accounting concept refers to the basic assumptions and rules and principles which work as the basis of recording of business transactions and preparing accounts. Accounting policies are the specific principles and procedures followed by a company's management team (may change from company to company) that are used to prepare its financial statements. Accounting standards are common (they apply to all entities)(like law) sets of principles, standards, and procedures that define the basis of financial accounting policies and practices. (you will learn more of these standards at intermediate level) All of these make the books of accounts and at the end financial statements


roshini reddy

roshini reddy

CA Inter

1K+

26-Aug-21 15:31

ibs launch
Direct Tax