Contingent Liability

AS 7336 views 2 replies
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Practising CA
144 Points Joined January 2010

Hi Friends,

Need help on AS 29 - Contingent Liability related disclosure

In respect of a 'Supplier contract', there is part performance regarding payment. Now the supplier had send a 'Letter' thru his lawyer demanding balance payment plus interest and penalty. We acknowledge 'balance payment' to the supplier in our accounts. There is no 'legal notice' or any 'suit' at this date.

The Auditors want to disclose 'interest and penal' demand as 'Contingent Liability'. My view is that since there is no legal action initiated by the 'Supplier' and the lawyer is only acting as an 'agent', this does not stand the test of 'contingent liability' as of date.

Let me know your thoughts.

Thanks in advance for the help.

Yuvak

 

 

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On 09 June 2011 at 20:31 Report
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CA CS And CMA Final
919 Points Joined May 2009

yes, the auditor is right if the payment of interest and penalty payable due to delay.

contingent liability means the possibility of future debts. 

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On 15 June 2011 at 15:25
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learner
330 Points Joined October 2009

Hi,

Yes you are right "the lawyer is only acting as an 'agent', this does not stand the test of 'contingent liability' as of date."

Contigent liability simply mean probility of happing or non happning of any event in future,  but in given case the demand arises so the  correct treatment  would be showing it  as intrest and penalty .

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On 16 June 2011 at 00:50


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