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ICDS X : Provisions, Contingent Liabilities & Contingent Assets

Income Tax - Income computation and disclosure standards - 11 - ICDS X : PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS This ICDS corresponds to AS 29 and Ind AS 37, which also deal with Provisions, Contingent Liabilities and Contingent Assets. The language of this ICDS is however closer to that of AS 29, and significantly different from that of Ind AS 37. 1. Scope:- This ICDS specifically excludes provisions, contingent liabilities and contingent assets resulting from financial inst .....

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ties transactions governed by ICDS VIII. This ICDS would not affect revenue recognition, which is governed by ICDS IV. This ICDS would however impact recognition of expenditure, in as much as the point of recognition of a provision or treatment of an item as a contingent liability, may impact the year of allowability of the corresponding expenditure, since a contingent liability would not be allowed as an expenditure, while a provision would generally be allowable. Provision: The emphasis in ICD .....

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recognised because reliable estimate cannot be made (or it is not reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation). Contingent liability would not be an allowable deduction for the purposes of the computation of the income under the heads Income from business or profession and income from other sources . 2. Recognition:- (i) Provisions: A provision shall be recognised when: a person has a present obligation as a result of a pa .....

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rting period, and not its possible position in the future. Therefore, the only liabilities recognised are those that exist at the end of the reporting period. It is only those obligations arising from past events existing independently of a person's future actions, that is the future conduct of its business, that are recognised as provisions, for example penalties or cleanup costs for unlawful environmental damage, decommissioning costs of an oil installation or a nuclear power station. Note .....

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nditure. Allowability of such expenditure is governed by relevant sections, e.g. provision for contribution to provident fund, gratuity etc. Provision for expenses other than expenses governed by specific section in the Act will be governed by this ICDS. (ii) Contingent Liabilities:- A person shall not recognise a contingent liability. This provision is also consistent with the tax position that a contingent liability is not deductible in computing the total income. (iii) Contingent Assets:- A p .....

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The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the previous year. The amount of a provision shall not be discounted to its present value. The amount recognised as asset and related income shall be the best estimate of the value of economic benefit arising at the end of the previous year. The amount and related income shall not be discounted to its present value. 4. Reimbursements:- Under ICDSX, reimburse .....

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