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Distinction between Contingent Liability and Provisions

Basis

Liability

Contingent Liability

Definition

 

 

A contingent liability is not a liability as it is not apparent that an outflow of resources embodying economic benefit will be required to settle the obligation

A provision is a liability which can be measured with some estimation. It is a reliable estimate of a probable outflow of resources to settle a present obligation.

Recognition

 

A contingent liability has no recognition

in the books of accounts

A provision is recognised in books of accounts

 

Disclosure

 

 

 

 

A contingent liability is disclosed as

required by AS-29

 

 

 

For provision, the following are disclosed:

·   ƒ Opening and closing balance

·   ƒ Additions during the year

·   ƒ Amount used during the year

·   ƒ The unused amount is reversed during the year





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