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Distinction between Contingent Liability and Provisions



Contingent Liability




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.



A contingent liability has no recognition

in the books of accounts

A provision is recognised in books of accounts







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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