AS-29
Provisions, Contingent Liabilities
and Contingent Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Content of the Presentation
Objective of the Standard
Applicability
Scope of the Standard
Definitions explained
Recognition criteria - Provisions
Observations/Other points - Provisions
Recognition criteria - Contingencies
Observations/Other points - Contingencies
Measurement of Provisions
Other Points
Disclosure requirement
Comparison with AS 4
Decision table - Summarized position
Comparison with IAS
Comparison with US GAAP
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Objective of the Standard
Ensuring that appropriate recognition criteria
and measurement bases are applied to
provisions and contingent liabilities
Incorporation of sufficient information in financial
statements to enable users to understand the
nature, timing and amount of provisions and
contingent liabilities
Laying down appropriate accounting for
contingent assets Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Applicability of the Standard
It comes into effect in respect of accounting
periods commencing on or after 1st April 2004
Entire AS is applicable to (category a):
Enterprises whose equity or debt securities are listed in
India or outside India
Enterprises which are in the process of listing
Banks including co-operative banks
Financial institutions
Enterprises carrying on insurance business
Enterprises whose turnover in immediately preceding
financial year is more than Rs. 50 Crs
Enterprises having borrowings in excess of rs. 10 crs at
any time during the accounting period contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Applicability of the Standard (contd...)
Entire AS, except disclosure requirement of para
67, is applicable to (category b):
Enterprises whose turnover in immediately preceding
financial year is more than Rs. 40 Lacs but is not more
than Rs. 50 Crs
Enterprises having borrowings in excess of Rs. 1 Cr. But
not in excess of Rs. 10 Crs at any time during the
accounting period
Holding and subsidiary enterprises of any one of the
above at any time during the accounting period
Entire AS, except disclosure requirement of para
66 & 67, is applicable to all other enterprises
(category c)
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other Points Regarding Applicability
Enterprise once covered in category a and
subsequently ceases to be so covered will not
get exemption from para 67 until the enterprise
ceases to be covered in category a for two
consecutive years
Enterprise once covered in category a or b and
subsequently ceases to be so covered will not
get exemption from paras 66 & 67 until the
enterprise ceases to be covered in category a
and b for two consecutive years contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other Points Regarding Applicability (contd…)
Enterprise once covered in category c and
subsequently ceases to be so covered in the
current accounting period, this standard applies
in its entirety (if it subsequently falls in category
a) or in its entirety except para 67 (if it
subsequently falls in category b), as the case
may be, from the current accounting period.
However, the relevant corresponding previous
period figures need not be disclosed
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other Points Regarding Applicability (contd…)
If pursuant to the above provisions an enterprise
does not disclose information required by para
67 or paras 66 and 67, it should disclose such
fact
From the date of applicability of this Standard all
paras of AS 4 Contingencies and Events
Occurring After the Balance Sheet Date that
deal with contingencies (paras 1(a), 2, 3.1, 4 (4.1
to 4.4), 5 (5.1 to 5.6), 6, 7, 9.1(relevant portion),
9.2, 10, 11, 12 and 16) shall stand withdrawn Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Scope of the Standard
Standard should be applied in accounting for
provisions and contingent liabilities and in
dealing with contingent assets
Statement does not apply to provisions,
contingent liabilities and contingent assets:
Resulting from financial instruments that are carried at
fair value
Resulting from executory contracts
Arising in insurance enterprises from contracts with
policy holders and
Covered by another accounting standard contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Scope of the Standard (contd…)
Executory contracts are contracts under which
neither party has performed any of its
obligations or both parties have partially
performed their obligations to an equal extent
Examples of provisions dealt with by another
standard are:
AS 7 construction contracts
AS 22 accounting for taxes on income
AS 19 leases
AS 15 accounting for retirement benefits in the
financial statements of employers contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Scope of the Standard (contd…)
This statement does not address recognition of
revenue i.e. it does not change the
requirements of AS 9 revenue recognition
The term provision (as used in this standard)
does not include depreciation, impairment loss
and doubtful debts
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Definitions explained
A Provision is:
A liability
Which can be measured only by using a
substantial degree of estimation
A Liability is:
Present obligation arising from past events
Settlement of which is expected to result in outflow
of resources embodying economic benefits
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Definitions explained (contd…)
An Obligating Event is:
An event that creates an obligation
That results in an enterprise having no realistic
alternative to settling that obligation
A Possible Obligation is an obligation the
existence of which (based on the evidence
available) at the balance sheet date is
considered not probable.
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Definitions explained (contd…)
A Present Obligation is an obligation the
existence of which (based on the evidence
available) at the balance sheet date is
considered probable i.e. more likely than not
A Contingent Asset is:
A possible asset that arises from past events
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 contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Definitions explained (contd…)
A Contingent Liability is:
A possible obligation
that arises from past events
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
A present obligation that arises from past events but is
not recognised because:
It is nor probable that an outflow of economic resources
will be required to settle the obligation or
A reliable estimate of the amount of the obligation
cannot be made contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Definitions explained (contd…)
A Restructuring Programme is a programme:
that is planned and controlled by management
and
that materially changes either:
the scope of a business undertaken by an
enterprise
the manner in which that business is conducted
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Recognition criteria - Provisions
Para 14 of AS states that a Provision should be
recognised when:
an enterprise has a present obligation as a result
of a past event
it is probable that an outflow of economic
resources embodying economic benefits will be
required to settle the obligation and
a reliable estimate can be made of the amount of
the obligation Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations/other points - Provisions
On the basis of evidence available on the
balance sheet date and after considering
additional evidence provided by events
occurring after the balance sheet date:
where it is more likely than not that a present
obligation exists at the balance sheet date, the
enterprise recognises a provision if:
the settlement of obligation will result in outflow of
economic resources and
a reliable estimate of the amount can be made
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations/other points - Provisions (contd…)
where it is more likely that no present obligation
exists at the balance sheet date, the enterprise
discloses a contingent liability, unless the
possibility of an outflow of economic resources
is remote
Only present obligations arising out of past
events should be considered
No provision should be recognised for costs
that need to be incurred to operate in future
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations/other points - Provisions (contd…)
An obligations always involves another party
to whom obligation is owed. It is not necessary,
however, to know the identity of the party to
whom the obligation is owed
An outflow of economic resources or other
event is regarded as probable if the probability
that the event will occur is greater than the
probability that it will not
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations/other points - Provisions (contd…)
Except in extremely rare cases, an enterprise
will be able to determine a range of possible
outcomes and can therefore make can
reliable estimate of the amount of provision
In extremely rare cases where it is not possible
to make a reliable estimate, no provision is
recognised and the liability is disclosed as
contingent liability Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Recognition criteria - Contingencies
As per para 26 of AS an enterprise should not
recognise a contingent liability
As per para 30 of AS an enterprise should not
recognise a contingent asset
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations / other points -
Contingencies
Where an enterprise is jointly and severally
liable for an obligation:
provision (if the recognition criteria is met) should
be made of the part of the obligation which has
to be met by the enterprise
the part of the obligation that is expected to be
met by other parties is treated as contingent
liability
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations/other points - Contingencies (contd…)
Contingent Liabilities should be assessed
continually to determine whether outflow of
economic resources has become probable or
not
The moment the outflow of economic resource
becomes probable provision should be
recognised if other recognition criteria is met
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Observations/other points - Contingencies (contd…)
When the realisation of income is virtually
certain, then the related asset is not a
contingent asset and its recognition is
appropriate
A contingent asset is not disclosed in the
financial statements
Contingent assets are assessed continually and
the moment the inflow of economic resource
becomes virtually certain, the asset and related
income should be recognised Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Measurement of Provisions
Best Estimate:
The amount recognised as a provision should be
the best estimate of the expenditure
It should not be discounted to its present value
It should be based on evidence available not
only on the balance sheet date but also from the
events occurring after the balance sheet date
The provision is measured before tax - tax
consequences should be dealt in accordance
with AS 22 Accounting for Taxes on Income
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Measurement of Provisions (contd…)
Risks and Uncertainties:
Risks and uncertainties that surround events
and circumstances should be taken into
account in reaching the best estimate
Uncertainty does not justify the creation of
excessive provisions or a deliberate
overstatement of liabilities
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Measurement of Provisions (contd…)
Future Events:
Future events affecting the amount required to
settle an obligation should be reflected in the
amount of a provision if and only if there is
sufficient objective evidence that they will occur
Expected Disposal of Assets:
Gains from the expected disposal of assets
should not be taken into account in measuring a
provision
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Measurement of Provisions (contd…)
Reimbursements:
When the expenditure required to settle a
provision is expected to reimbursed by another
party, the reimbursement should be recognised
It should be recognised only if it is virtually
certain that reimbursement will be received
Reimbursement should be treated as a separate
asset
The amount of reimbursement should not
exceed the amount of provision
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Measurement of Provisions (contd…)
Changes in and Use of Provisions:
Provisions should be reviewed at each balance
sheet date and adjusted to reflect the current
best estimate
If after review it is identified that it does not meet
the recognition criteria it should be reversed
Provision should be used only for expenditure
for which the provision was originally recognised
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other points
Future Operating Losses:
Provisions should not be recognised for future
operating losses
Future operating losses do not meet the
definition of liability
Expectation of future operating losses is an
indication that certain assets may be impaired
and thus, these assets should be tested under AS
28 Impairment of Assets
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other points (contd…)
Restructuring:
Provision for restructuring costs is recognised
only when the recognition criteria for provisions
are met
A restructuring provision should include only the
direct expenditure arising from the restructuring
and which are:
necessarily entailed by the restructuring and
not associated with the ongoing activities of the
enterprise
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other points (contd…)
Restructuring (contd…) :
Examples of restructuring are:
sale or termination of a line of business
the closure of business locations in a country or
region
relocation of business activities
changes in management structure
fundamental re-organisations that have a material
effect on the operations
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Other points (contd…)
Restructuring (contd…) :
Restructuring provision does not include such
costs as:
retraining or relocating continuing staff
marketing or
investment in new systems and distribution
networks
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Disclosure
For each class of provision, the following
should be disclosed (para 66 of the AS) :
carrying amount at beginning and end of the
period
additional provisions made in the period
amount used during the period
unused amounts reversed during the period
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Disclosure (contd…)
For each class of provision, the following should
be disclosed (para 67 of the AS) :
brief description of the nature of the obligation
and expected timing of any resulting outflow of
economic resources
an indication of the uncertainties about those
outflows and major assumptions concerning future
events
the amount of expected reimbursement, stating
the amount recognised as an asset for expected
reimbursement
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Disclosure (contd…)
Unless the possibility of outflow of economic
resources is remote, for each class of
contingent liability, the following should be
disclosed (para 68 of the AS) :
brief description of the nature of contingent
liability
an estimate of financial effect
an indication of the uncertainties relating to any
outflow
the possibility of any reimbursement contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Disclosure (contd…)
Where any of the information required by para
68 is not disclosed because it is not practicable
to do so, that fact should be stated
If the disclosure of information are required in
the Standard, is expected to prejudice seriously
the position of the enterprise in a dispute with
other parties on the subject matter of the
provision or contingent liability, enterprise need
not disclose the information
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Disclosure (contd…)
If as per above, the enterprise does not
disclose the information, it is required to
disclose
the general nature of the dispute
reason why the information has not been
disclosed
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with AS 4 Contingencies
and Events Occurring After the Balance
Sheet Date
AS 29 AS 4
Definition of Contingent Contingent Liability and
Liability and Contingent Contingent Asset included in
Asset separated the definition of
‘Contingency’
The term ‘Provision’ clearly No express segregation of
distinguished from the term ‘Provision’ from the
‘Contingent Liability’ and term of ‘Contingent Liability’
thus both the terms have
been elaborated
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with AS 4 Contingencies and Events
Occurring After the Balance Sheet Date (contd…)
AS 29 AS 4
Only if there is a present If it is probable that
obligation and there will contingency will result in a
be outflow of economic loss (an asset impaired or
resources (to settle it) liability incurred), provision
which can be reliably should be made
estimated, provision
should be made
Provision once made No such express
should be reviewed at requirement mentioned
each Balance Sheet date
to see whether it sill meets
the recognition criteria
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with AS 4 Contingencies and Events
Occurring After the Balance Sheet Date (contd…)
AS 29 AS 4
Measurement of amount No such detailed
of provision should be: measurement principles laid
Based on best estimate down
After considering risks
and uncertainties
After considering future
events
Made without
considering expected
disposal of assets
After taking into account
reimbursements
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with AS 4 Contingencies and Events
Occurring After the Balance Sheet Date (contd…)
AS 29 AS 4
Provision can be made for No such specific activity
Restructuring activities if it included in the Standard
meets the recognition
criteria
Provision should be used No such express
only for expenditure for requirement mentioned in
which the provision was the Standard
originally recognised
Detailed disclosure No disclosure requirement
requirement for the for contingent liability for
Provisions made which provision is made
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with AS 4 Contingencies and Events
Occurring After the Balance Sheet Date (contd…)
AS 29 AS 4
If the disclosure of No such concession given
information will by the Standard
prejudicially affect the
interest of the enterprise
(in a dispute with third
party) the same may not
be disclosed. However,
general nature of dispute
and the reason for non-
disclosure should be
mentioned
Return
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Decision Table - Position Summarized
Situation 1 Situation 2 Situation 3
There is a present There is a possible There is a possible
obligation that obligation or a obligation or a
probably requires an present obligation present obligation
outflow of resources that may, but where the
and a reliable probably will not, likelihood of an
estimate can be require an outflow outflow of
made of the amount of resources. resources is
of obligation. remote.
Action 1 Action 2 Action 3
A provision is No provision is No provision is
recognised (para 14). recognised (para recognised (para
26). 26).
Disclosures are
Disclosures are No disclosure is
required for the
provision (paras 66 required for the required (para 68).
and 67) contingent liability
Return
(para 68).
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with International
Accounting Standard
IAS 37 AS 29
Discounting of Provisions
Where the effect of The amount of provision
time value of money is should not be discounted
material the amount of to its present value
provision should be
discounted
Contingent Assets
Where the inflow of Contingent Assets are
economic benefits is usually disclosed in the
probable, contingent report of approving
assets should be authority. No requirement
disclosed in the of disclosing it in financial
financial statements statements contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with International Accounting
Standard (contd…)
IAS 37 AS 29
Onerous Contracts
Present obligation under No such requirement
an Onerous Contract incorporated in AS 29
should be recognised as
provision. Onerous
Contract is a contract in
which the unavoidable
costs of meeting the
obligations exceed the
economic benefits
expected to be received
under it
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with International Accounting
Standard (contd…)
IAS 37 AS 29
Constructive Obligation
IAS deals with Requirement of
‘constructive obligation’ in recognising constructive
the context of creation of obligation has been
provision. For example, in omitted by AS 29.
case of a restructuring, a
constructive obligation
arises when an enterprise
has a detailed formal plan
for restructuring. Thus, in
this case provision is
recognised at an early
Return
stage
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with US GAAP - FASB
Statement No. 5 - Accounting for
Contingencies
US GAAP AS 29
If the estimated No such express
amount of loss is requirement. However, all
within a range, risks and uncertainties
provision should be should be considered in
based on best reaching best estimate.
estimate. If best Uncertainty does not justify
estimate cannot be creation of higher amount of
made, minimum provision. Thus, in case of
amount should be uncertainty lower amount
provided with a should be provided with no
disclosure of disclosure of higher amount
maximum amount. contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with US GAAP - FASB Statement No. 5 -
Accounting for Contingencies (contd…)
US GAAP AS 29
No provision should be No provision can be made for
made for general general /unspecified
/unspecified contingencies. Disclosure of
contingencies such as such contingencies is also not
seIf-insurance etc. encouraged.
However, footnote
disclosure and/or
appropriation of retained
earnings can be made
for such contingencies.
contd...
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Comparison with US GAAP - FASB Statement No. 5 -
Accounting for Contingencies (contd…)
US GAAP AS 29
Unasserted claims exist No such requirement
when the claimant has incorporated in the Standard
elected not to assert the
claim or because the
claimant lacks knowledge
of existence of claim. If it
is probable that outcome
of such claims (if made)
will be unfavourable, the
unasserted claim should
be disclosed in the
financial statements
Return
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