AS-29 Provisions, Contingent Liabilities, and Contingent Assets

The objective of AS 29 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. This standard applies in accounting for provisions and contingent liabilities and contingent assets resulting from financial instruments (not carried at fair value) and insurance enterprises (other than those arising from contracts with policyholders).

The standard will not apply to provisions/liabilities resulting from executing controls and those covered under any other accounting standard.

This Standard is mandatory in nature from that date:

In its entirety, for the enterprises which fall in any one or more of the following categories, at any time during the accounting period:

• Enterprises whose equity or debt securities are listed whether in India or outside India.
• Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard.
• Banks including co-operative banks.
• Financial institutions.
• Enterprises carrying on insurance business.
• All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds 50 crore. Turnover does not include ‘other income’.
• All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of 10 crore at any time during the accounting period.
• Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

In its entirety, for the enterprises which do not fall in any of the categories in (a) above but fall in any one or more of the following categories:

• All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds 40 lakhs but does not exceed 50 crore.
• Turnover does not include ‘other income’.
• All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of 1 crore but not in excess of 10 crore at any time during the accounting period.
• Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
• Where an enterprise has been covered in any one or more of the categories in (a) above and subsequently, ceases to be so covered, the enterprise will not qualify for exemption from this Standard, until the enterprise ceases to be covered in any of the categories in (a) above for two consecutive years.

Where an enterprise has been covered in any one or more of the categories in (a) or (b) above and subsequently, ceases to be covered in any of the categories in (a) and (b) above, the enterprise will not qualify for exemption from this Standard, until the enterprise ceases to be covered in any of the categories in (a) and (b) above for two consecutive years.

Scope

This Statement should be applied in accounting for provisions and contingent liabilities and in dealing with contingent assets, other than

• Those resulting from financial instruments that are carried at fair value;
• Those resulting from executory contracts;
• Those arising in insurance enterprises from contracts with policy-holders; and
• Those covered by another Accounting Standard.

Definitions

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 executory contracts include:

• Employee contracts in respect of continuing employment;
• Contracts for future delivery of services such as gas and electricity;
• Obligations to pay local authority charges and similar levies; and
• Most purchase orders.

• A Provision is a liability which can be measured only by using a substantial degree of estimation.
• A Liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
• An Obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation.

A Contingent liability is:

• (a) A possible obligation that arises from past events and 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; or

(b) A present obligation that arises from past events but is not recognised because: It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

A reliable estimate of the amount of the obligation cannot be made.

• 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.
• Present obligation – an obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not.
• Possible obligation – an obligation is a possible obligation if, based on the evidence available, its existence at the balance sheet date is considered not probable.
• A Restructuring is a programme that is planned and controlled by management, and materially changes either:
• The scope of a business undertaken by an enterprise; or
• The manner in which that business is conducted.