As - 29: contingenty liability vs provsn

Hello,

A provision is a liability which can be measured only by using a substantial degree of estimation, thta is managemnt has the estrimation of expenses, 

Contingent liability is  a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) a reliable estimate of the amount of the obligation cannot be made.

Hence the major difference between two is reliable degree of estimation.

If a contingent liability is made and further its estimation of losses can me made, we will create a provison for same, substantial degree means % lying between 30-50%

In this case, there cannot be a 'provision' that can be created. We give car as a security for a vehicle loan - this doesn't mean that we create a provision for it. Only the loan amount is recognized as a liability.

In this case, under the Fixed Asset schedule, the facts about security should be disclosed. Also a note should be given regarding the status and from the facts of the case, this looks like a clear 'contingent liability'