LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Contingent Liability

yuvak (Practising CA) (144 Points)

09 June 2011

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

Reply
Follow
Share

2 Replies

Rajnikant Vadigoppula (CA, CS And CMA Final) (919 Points)
Replied 15 June 2011

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

contingent liability means the possibility of future debts.

NANDINI MASAND (learner ) (330 Points)
Replied 16 June 2011

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 .