AS 4 - Contingencies

Aspect 1 - explaining coverage for contingencies.

With the introduction of AS-29 all the Contigencies (viz Contingent Liabilities and Contingent Assets) are coverd under AS-26.

AS-26 cleary defines what are Contingent Liabilities or contingent Assets.

The practical issue involved herein was whether all the provisions are covered by the AS-26.

AS-26 defines Provision as -  " A provision is a liability which can be measured only by using a substantial degree of estimation. "

Therefore it is quite clear that it does not cover provisions made towards the items representing Asset to te Company, and for this reason AS-4 continues to apply to only for the purpose of provision towards Assets.

Aspect 2 - explaining difference between contringency and events occuring after the balance sheet date.

Contigency situation wherein the outcome is yet to be known, which will be ascertained on happening or not happening of certain event in the future.

eg. A warranty claim case filed against the company for goods sold by it. The amount that needs to be provided depends upon the facts of the case and would require professional judgement on an case to case basis. At each Balance sheet date the same needs to be verified n if required then account for the claim to payable.

As regards events occuring after the balance sheet date, it is occurrence of certain activity or event for an item or transaction which already existed on the balance sheet date but provides further evidence to substantiate the amount reflected.