performance guarantee

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Dhavan Gavaral (Querist)
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15 April 2010 Whether performance guaranty given by a corporate (Private Company) is required to be disclosed as contingent liability in notes on accounts.

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CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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15 April 2010 Yes. It is compulsiory.

Dhavan Gavaral

Dhavan Gavaral (Querist)
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15 April 2010 Any specific paragraph in Sch VI disclosure requirement which you may want to refer in case of compulsry disclosure.

Rasesh

Rasesh (Expert)
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15 April 2010 In my view, performance guarantee should be included in contingent liabilities only if they are issued by your banker at your instruction. Likewise letter of credits issued by banks should also be included.

If the performance guarantee is simply given on your letter head, no need to include it.

I will try to locate the exact reference.

Dhavan Gavaral

Dhavan Gavaral (Querist)
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16 April 2010 It is issued by banker. However, the event of liability will arise only in case of default of performance which will have to be assessed/agreed by both the parties. In my view, from the point of default in performance and upto the point of settlement of default, the liability will be treated as contingent and giving performance guarantee as a contractual obligation may not result in guarantee being a contingent in nature upto the point of default in performance.

Rasesh

Rasesh (Expert)
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16 April 2010 Should be included.

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