 Last session or last standard, AS 29, provisions, contingent liabilities, contingent assets. Okay, can you define for me or can you explain me these at least the two words provisions and liabilities. What is the difference? Can you define these three terms for me? Provision is just an estimate, can be changed in the future. Liabilities is a fix, I mean whatever liability you have to pay. Provision is estimate, liability is final. We have to pay the fixed amount. No. No. Okay, let's go. No. And contingent is? Conditions. What is the difference between provision and contingent liability then? When will you call it a provision, when will you call it a contingent liability? Contingent liability is a liability which depends upon the contingency of the events. If the contingent liability becomes material and it is against the company or against the institute suppose there is a case, in the case if we win there is no contingent liability, if we defeat then the contingent liability becomes actual liability. So it depends upon the contingency of the events. Okay, are you saying that provision is for the event which has already occurred or you know that you have to pay the amount. We have to, for example provision for retirement benefit. I have to provide in my booksof account. So provision is event occurred, amount uncertain. Can I say that? Only the amount is uncertain, liability is certain. Liability accrued, accrued liability. Liability is accrued or I have to pay only the amount or timing is uncertain. Uncertain. Can I say that? Yeah, it is an estimate. Okay, and contingent liability? Contingent liability is an uncertain event. I don't know. That means event is uncertain. Event is uncertain, amount is also uncertain. Event and amount, two things are there, right? Yeah. Okay, you are saying whether event is certain or not? Yes, yes. In contingent liability? Not certain, not certain. Event is uncertain? Event is certain or uncertain? Event is there, event is there, it may or may not happen. Okay, event may be certain, may be uncertain. Yes, yes. But... Amount? Totally uncertain. It cannot be arrived at. Totally uncertain. Cannot be estimated, sir. Amount can also be certain and uncertain. Provisions, like retirement benefits by actual valuation, the amount can be estimated. Provision, amount can be estimated, contingent liability also, amount can be estimated. That is like the retirement benefits. Okay, what happens to a corporate guarantee? Corporate guarantee is a contingent liability or not? Contingent. Contingent? Yes. Why? Event is uncertain. What about the amount? Amount is known, event is unknown, so it is possible in contingent liability that amount is certain? Right or wrong? In contingent liability also, amount can be certain. Okay, what is the corporate guarantee? Suppose my, my, my, say, subsidiary wants to take a loan. Okay, and I give a guarantee to the bank that you give a loan, if he does not pay, then I will pay. That is a guarantee, bank guarantee or corporate guarantee. Yes? Amount is certain or not? Event is uncertain. Event is uncertain. Amount I know, so my contingent liability maximum amount is 1 crore rupees. If he does not pay maximum, 1 crore I will pay. That is amount is certain, event is uncertain. So, contingent liability also, there can be a possible obligation or a present obligation. However provision it is always a present obligation. Liability there is always a present obligation. Contingent liability not always possible obligation, there can be present obligation also. Okay, when there can be a present obligation but a contingent liability, what is the scenario? Can you tell me? Chances of payment of liability is removed. Okay, for example, I have lost a case in High Court. Okay, and High Court has told me to pay say 1 crore rupees to someone. Okay, is it a present obligation? Yes, because I have already lost a case. But I feel that I will not be paying the amount. What I do is I go and file a case in Supreme Court. Or income taxes is the demand of 5 lakh rupees. Liabilities present obligation? Yes, but I go and appeal against that demand. Contingent liability? So, present obligation but chances of payment is less than it is. Contingent liability, possible obligation. Possible obligation is there is a case which has not been decided yet. So, it is a possible obligation. So, event is uncertain, possible obligation. Event is certain but chances of payment is uncertain, again contingent liability. Okay, liability in provision in both the scenario, event has occurred, event is certain, present obligation. Liability is when the amount and the timing is certain. Provision is when the amount or timing, at least one of them is uncertain. Clear? Okay, what is, there is electricity bill which comes in April, say 5th of April. 31st March, what do I do? Liability of provision. How do you account for electricity bill? How do you calculate the amount based on Feb month's amount or based on March month bill, which comes in April? Which comes in April. So, the amount is certain? Certain. Payment of timing is certain, you know that you will pay on 7th of April, 10th of April. So, timing is also certain, amount is also certain, how can it be provision? This is a liability. Okay, one more difference is, one second sir, provision is booked expense to provision. Liability is booked expense to creditor. Liability is never booked expense to provision or provision is never booked expense to creditor. In case of credit or credit. Let of credit after the bank has disbursed the amount or before the bank has disbursed the amount. Before then, liability is also not certain, amount is also not certain. If the person does not deliver me the goods, then I will not ask the bank to pay the amount for the goods. After it is disbursed by the bank, yes. Both are certain and hence it is a liability. Clear sir? Thank you. LC? LC is not a contingent liability also. Contingent liability is when, see, I have received the benefits or there is a, see, both the events, asset and liability both will happen in future. That means they will deliver me goods and I will make the payment. So, both things happening in future, I do not need to record a contingent liability. Piking fraud charges. So, in case of that some import procurement, what happens? When we will go for liability or provision? In indigenous purchase, local purchase, so we have a fixed amount of purchase order and we will getting a... So, if amount is uncertain, you will go for provision? So, we will make a provision for the import also. See, when do you record import purchase? When do you record purchase in case of import purchase? Suppose the order is placed before 31st March, we have to go for the provision. Do you record purchase when you have given the purchase order? Yes. No. Why? This question. This question itself is a little not correct because you do not record purchase when you raise a purchase order. You record purchase when it reaches your destination, your port? No, not necessary. Because we have a order placed from before 31st March and we are expected delivery date is suppose May or June, whatever. Pultures should be recorded when risk and rewards are transferred by the seller to the buyer. That is when purchase should be recorded. Risk and rewards are transferred when the goods are in your control. The goods are in your control when it reaches your port. And when it reaches your port, you know what is the import duties and all that. In case of import procurement, suppose if it is on FOV basis, if it is boarded, so you have to take accounts before 31st March. Yes, in that case you will record purchase and then that purchase will be at estimated value. And yes, then see but then you will not make a provision for this, your import duties and all. Because the timing will happen in the next years. The import duties will have to paid in the next year, so you will not make that provision now. Provision is made when? When is the provision made? What is the liability? Can you define liability for me? The payment which is to be paid, I mean we know that certain obligations, yes. Why will there be obligation to pay? Because benefits have been received. Benefits has been received. So liability is when benefits have been received but payment has not happened. Happened, then only the liability. So now your services of that custom or duties have not, you have not received those benefits. So you will not record that liability. So then you mean to say sir the LC cases will not book the amount. LC cases before you have asked the bank to disperse you will not book any amount. LC cases only when you have asked the bank to disperse that is when you book the amount. Contingent also it will not come. Because you have not received the goods, goods you have not in your control. See LC is not a contingent liability. In LC what happens is an amount is set aside. Perhaps LC will be an advance. Yes, it will be advance or it is set aside. You can keep it in bank account also. You can keep it as restricted money or LC. You have to account for in the asset side. When will it be capitalized? When the goods reaches to the port. If it is FOB when it reaches the port of that port. And if it is CIF basis or you call it CIP basis I think. Then it when it reaches your port. So that is what I said LC will come on your asset side. It is not your contingent liability. LC will come on your asset side because your money has been blocked for that particular purpose. The moment you give the instruction it will be released. Then you have to pay to the bank. So that limit has been blocked. In some cases foreign parties are made without making the payment. In that situation perhaps it may become the contingent liability. Because when LC is opened. So when LC is opened 100% amount goes from our bank account to the bank. And it is irrevocable also. The amount remains in the custody of the bank but it is irrevocable. So it appears on the asset side along with cash and bank. But in certain cases when we don't make the advance payment. Payment is against the delivery. In that situation because we have placed the order. And there is a obligation to receive that amount or prove of dispatch also is there. The goods are also received. If the goods have been received then it is a liability. Not a contingent liability. Suppose goods have not been received. In that situation what is the status? I don't think so it will be a contingent liability. It will be booked as a liability in future. It is a future liability. Future liabilities are not contingent liability. What is the difference between future liability and future liability? See as I said benefits will be received in future. And the liability. Say suppose I have placed the order for furniture. Like P.O. You gave P.O. On the basis of P.O. The goods will also be supplied later. You will also make the payment. Will you book that P.O. as a contingent liability? Why not? Because benefits will be received in future. Payment will happen in future. It is a future liability. It is not a contingent liability. Contingent liability is The benefits I received There is no benefit ahead. There is only liability ahead. And that liability may or may not happen. So it is a contingent liability. Suppose somebody has filed a court case. Yes. So it is a court case. If someone has filed a court case against me. There is no benefit in future. There is only a future liability. There is a liability which can happen or not happen in future. Benefits already received. So it is a contingent liability. But there is no future liability. Future obligation or something like that. Future obligation if the court case is against me. And if I lose the case. Then there is a liability. So it is a contingent liability. What type of contingent liability What type of contingent liability Can act in educational institutions? Court case. Demand notice from Demand notice from income tax department. Service tax, income tax. Any tax notice which you have received. Notice is not. Demand notice. Yes. Any demand notice you have received from any department. It is a contingent liability till the time you clear it. Or you accept it as a liability. Either you accept it as a liability. Or you keep it as contingent liability depending upon your stand. If I contest it. If I go for appeal or if I Then it is a contingent liability. If I accept it. Then it is a liability. Liability is a present obligation. Because of past event. If I am going to receive goods in future. Event is also future. So it is not a liability. Liability is because of past event. Which will result in outflow of economic resources. Provision is either timing or amount is uncertain. Contingent liability. Either it can be a possible obligation. That means obligation itself is uncertain. Event itself is uncertain. Or it can be present obligation. In case of present obligation. Either outflow is not probable. Or I cannot measure the amount. That means sometimes what happens is. Sometimes court says you are guilty. But the amount of compensation will be decided in the next hearing. So when I am proved guilty. It becomes my present obligation. But the amount of compensation is not clear. Which happens in the next hearing. So that becomes present obligation. But amount is uncertain. So it becomes a continual liability. Okay what is oneness contract? Beneficial contract. It is a contract which is no more beneficial. It is a burden. Okay for example. Actually I have given an example over here. Company X enters into a contract to lease a warehouse for 10,000 a month. Contract is cancelable within 2 years. Only on payment of the 1 lakh. That means it is a non-cancelable contract for 2 years. But if you want to cancel within 2 years. You have to pay 1 lakh rupees. Company stops using the warehouse after 1 year. So a company has hired a warehouse or leased a warehouse. The amount or rent is 10,000 rupees per month. So 1 lakh 20,000 2 years 2 lakh 40,000 rupees. Okay. It is using for 1 year. After 1 year. After 1 year it says that now it is of no use. I will not be using it. Now it has 2 options. Either to keep it with it and pay 10,000 rupees per month or cancel the lease and for cancellation it has to pay 1 lakh rupees. These are the 2 options. Okay. Is there any benefit in that lease first of all? After 1 year. No. When I entered into a contract see when I use a premise I generate revenue out of that premises. When I use a warehouse I generate revenue out of that warehouse. The moment I stop using that warehouse I am not generating any revenue from that warehouse. So there is no benefit arising out of that warehouse. There is only cost involved in that warehouse. Right? Are you with me till here? When a contract has no benefit but only cost that type of contract is called as Onras contract. Okay. This type of contract is called as Onras contract which is there above. Now Onras contract it says that it will be treated as loss in the year in which it becomes Onras. So on 31st March I know that I am not going to use it next year. 31st March it has become Onras contract. How do I provide for it? It says that whatever is the minimum obligation unavoidable cost that should be recorded as loss immediately on 31st March. Now what is the unavoidable cost in this contract? 1 lakh. I can cancel the contract for 1 lakh. I need not pay 1 lakh 20,000 rupees. 1 lakh should be booked as loss immediately. Clear? Okay. Suppose I give it on a sublease for 5,000 rupees a month. So in the next year I can recover 60,000 rupees. But I am going to pay how much? 1 lakh 20,000 rupees. It is still Onras contract. Why? Because the benefits are less than the cost. Cost is 1 lakh 20,000. Benefit is only 60,000. The loss portion of this 60,000 balance 60,000 should be booked as loss immediately on that 31st March. You should not wait for next year. Clear? Contract cancelable within 2 years. And 1 year has already passed. Now suppose the contract is for 3 years. So the 2 years amount is to be it will become loss for the organization. 2 years amount or 1 lakh whichever is lower? Whichever is lower. So whether it will come in the same financial year matching concept it will not contradict. See matching concept will come when there is a revenue and there is a cost. Here there is no revenue only cost. Hence you have to book immediately. Because it is for 2 years. Whatever amount we are partying. Yes sir but there is no revenue in future. There is no benefit in future. See as I said suppose I give it on rent for 6,000 suppose. I take on rent for 10,000. I sublease on rent for 6,000. I have a loss of 4,000 per month. So into 12,000 I have a loss of 48,000. This 48,000 I should book as loss immediately. And next year what I should do is I should book rent of 6,000 balance 6,000 and income of sublease of 6,000. If I am not subleasing, if there is no benefit at all in future entire loss should be booked in the current year. Because there is no benefit in future. Current year. Current year. I am basically saying if there is some benefit arising out of the contract then amount up to that benefit should be transferred in the next year all other loss should be booked in the current year. That is the basic principle or the point. In this contract suppose there is some other contract say suppose you have tried to use some software for 2 years. After 6 months you realize that it is of no use for me. Normally what I do is I do it as a prepaid expense. I paid for 2 years I treat it as a prepaid expense and then I charge every month some amount or every year some amount. After 6 months I realize I am not going to use it. So the balance 18 months I write it off immediately. That is a loss which has happened immediately. Sir if there is no guarantee if there is any guarantee there will be for full 1 year. Sir if there is no guarantee whatever loss is there in the future without any benefit should be booked immediately. It is just a presumption. Clear what is oneness contract and how to account for oneness contract? You have to account for future losses immediately. Provision for depreciation. Do we use this term provision for depreciation? Is it a provision? Provision for depreciation is a provision or not? Yes or no? Yes sir. Why it is a provision? We have no depreciation fund. We have no depreciation fund. But what is provision? How that answer my query? What is a provision? Provision is whether amount or timing is uncertain. Just like retirement benefits we make a provision but we have no pension fund so the same depreciation also we provide depreciation but there is no depreciation fund that I interpret. What amount is uncertain? Here useful life we are estimating that's why it is uncertain. That's why it is a provision. It is reduction in the value of assets. Sir provision is created for future liabilities isn't it? You said provision for depreciation you have asked us provision for depreciation. I am saying provision as a word or as a term or as a accounting term provision is created for future liabilities yes or no? Yes. Only the amount or timing is uncertain of future liability hence I call it a provision and not a liability. Is provision for depreciation created for future liability? Yes sir. It is not a replacement provision why do you create depreciation? Why do you depreciate it? It's not for future replacement. Depreciation as I said yesterday logic is matching concept I have to charge something or you might call it as use or use of that asset or It is the cost for reduction in the value of asset. Right so it is charged to asset it is you are doing that asset every year by charging depreciation it's not a provision we might call it as provision for depreciation but it is not a provision per se as per AS 29 it is not a provision provision is for future liabilities where the amount or timing is uncertain. Sir I agree with you in fact provision should not be made in case it happens provision has to made for depreciation the value of the entire asset has to be put in provision because ultimately all the assets are going to depreciate some day it is 0 so if at all it is there that has to be Provision for depreciation is not a provision you might call it so it is only a depreciation Yes of course. What is provision for bad and doubtful debts is it a provision? Yes. What is the future liability? We have been told provision for depreciation provision for bad and doubtful debts Is there a liability in future? Doubtful debt is not a liability it is non-recoverability of an asset it is not a liability provision for bad and doubtful debts you might call it as provision but it is not a provision It is a charge to asset or charge an asset it is not a liability it is a charge to asset or charge against profit or whatever you might call it It is not a provision you might call it so you might term it so but it is not a provision in accounting terms. Actually some profit is kept aside it is basically unrestricted profit only if it is not charged then it becomes the capital kind of thing actually Provision for depreciation provision for bad and doubtful debts Provision is substantial degree of estimation is required with regard to future actually not expenditure future out future payments accrual is goods or services that have been received but have not been paid or invoiced so you accrue it Present obligation you have to record where there is a provision whatever is the present obligation Probable outflow of resources and reliable estimate can be made then you have to record that provision you have to value that provision or measure that provision and record as expense account debit to provision okay there is something called as constructive provisions constructive liability do you know what is it accounting standard 15 also has used this term constructive liability constructive liability is not a legal liability but is a liability created because I have created certain expectations in the mind of my employees or my creditors or my shareholders so suppose every year I give 10% bonus so 10% becomes my constructive obligation to pay the bonus constructive liability to pay the bonus suppose I come and announce that I will pay 10,000 Diwali bonus to all my employees does it become a legal obligation it is a constructive obligation so there are two terms legal obligation and constructive obligation theoretically standard say that even constructive obligation should be accounted for you should create a provision for such constructive obligations even AS15 employee benefit says that when you keep on giving bonus every year at some particular percentage you are creating a constructive obligation in the mind of employees and hence you should account for that constructive obligation constructive obligation is a legal obligation in government organizations yes there is no constructive obligation everything is legal obligation ok you have made a provision for certain expenses suppose advertisement of 100 rupees in 2009 ok 2010 you get the bill of advertisement or whatever that expenses of 70 rupees however you also have the bill of bonus which you have to give for previous year to some of your employees of say 20 rupees can you adjust that 100 rupees provision which you had created last year against this 70 and 20 and just reverse 10 rupees the balance 70 plus 20 90 I created 100 I just reverse 10 rupees you are not allowed you have to reverse 30 rupees and then charge 20 rupees well prior period or not depends prior period when if you could have calculated in the previous year but you forgot to calculate then prior period but suppose it was announced in the current year that I will give you bonus or the percentage or how to calculate the bonus or the amount was announced in the current year then it is not prior period prior period is only when it was announced or you knew it last year but you forgot it is error or omission okay what happens to reimbursements do you incur reimbursement for the third party some expense incurred for the third party and then third party pays you do you incur that yes right say some suppose sponsorships or some event you have done for which certain cost will be borne by an advertiser you incur it now and then he will reimburse you yes that happens right how do you account for such reimbursements from the from the receiving organization I debit cash and credits the expenses where we have debited we had debited earlier so when I incur I book expense debit to cash yes and when I get back that money I book cash debit to expense if it happens within the same accounting year and what if it happens in the next accounting year so I expense cash to income then if it happens in the different accounting I will book a receivable entry at the end of the year then if it happens in the next year then then I will I will book a receivable entry at the end of the year so what entry you will pass receivable account debit to expense and in the next year cash account debit to receivable so basically you will see at the end of the year whether any receivable is still pending and then you create receivable that is the worst way of accounting in this case the original bills are sent to the grantee institution which says that we will be reimbursing and we do not book the expenditure we just send the bills to the grant institution and when we receive the money that simply kept in a transit head and the expenditure is not involved the expenditure is not booked in our institution no but you have paid right you have paid for it if you have paid for it you have to account for it how can you that means you are saying I received these two in the same year and because I received these two in the same year I have deleted both I have not booked at all one alternative entry can be done I can debit the data receivable and credit cash and let that receivable be there till I get the money when I will get the money maybe in this year in the next year I will credit receivable yes so basically the standard says that in income and expenditure account you can net off this expenditure and this income this expenditure and this expenditure can be net off or I directly book only balance sheet entries that is possible or I book expense and negative expense but in the balance sheet it should be two separate thing a liability and a asset balance sheet I cannot net off that means suppose I have to pay to the printer and I have to receive from someone suppose I have not paid to the printer I have to pay to the printer I have to receive from someone then I have to book liability and asset both receivable and payable both receivable and payable both I should not knock off receivable and payable I should book both receivable and payable in income and expenditure account I can knock off so I will not have any income expenditure fine but I have to have asset and liability whenever we make the payment from our source on behalf of some other party first thing is that it becomes receivable from that third party so first thing is you have to book these two entries yeah immediately you should not wait for year end whether he is paid or not you book these two entries immediately if you receive it then this entry should be cash to receivable otherwise negative balance you should book this immediately receivable also immediately you should book you should not wait for 31st march to book receivables which is not for the university it is for the sponsor we are doing something on behalf of the sponsor right so we do that way asset and liability both you book yes so both should be booked yes benefit is not for the university it is for the sponsor we are doing any questions on this anything remains unanswered let us come to continued liability so we have discussed what is provision provision is fine right you have to estimate the provision provision is created for those liabilities which is past event event has occurred amount of timing is uncertain so you estimate and you create a provision ok audit fees audit fees is a provision or a liability liability but you write provision for audit fees no we debit the audit fees and create the creditors because we have agreement with the audit firm for the next three years we know the rate it is pre-determined we give them engagement later we know the amount we know the timing what is uncertain nothing is uncertain you cannot say that your audit was lacking this this so I will not pay you this much amount I will pay you only this much but the CAG audit fee is not determined it is done it is done at the end of the audit only so that needs to be estimated because it is on the basis of walking days that is what we have to support audit and credit many times do you still have to pay the audit fees under that liability for expenses we are writing those things were concrete liability there but and for audit fee also liability for expenses head and writing audit talking about CAG auditors or normal auditors CAG auditors fine CAG auditors you can create provision because you are not sure when they will come CAG also charges audit fee so that's what CAG case you can create provisions it is news for me that CAG charging audit fee university is not paying any audit fee to CAG sir here sir let's talk about accounting please let's stick to only accounting questions I am answering his question because how is it possible that auditor doesn't turn up if there is a single unit then it is not possible because auditors have to come but if it is a multi-unit organization where hundreds of offices are there across India auditors will come at central place because budget and all are related accounts are all related but at individual units they do not come for 2 years 3 years 4 years also because grants are not to be reimbursed by the government on the basis of the local that those things are based on the central accounting units okay what all expenses you provide for what is provision for then what all expenses can you make provision for provision for retirement benefits provision for retirement benefits yes it's a future liability amount is uncertain timing is uncertain yes and provision for bad debt bad debt I said provision for bad debt is not a provision now we call it provision asking what is a provision and then you have to provide for that provision what are those kind of expenses retirement benefits fine employee benefits fine what else okay someone said yesterday that we create a ad hoc provision of some percentage 5% 10% we create ad hoc provision is it allowed no for some unknown cost so we make some 5% provision one of the institute someone said that yes we make a ad hoc provision of 5% or some percentage for some unexpected cost of current year which we will get in the we will know in the next year when we receive the bill or something fine that is not allowed no okay you cannot you can only create for as I said past event so event has occurred you know the event only the amount of timing is uncertain then and then only you can create a provision you just cannot create a ad hoc provision that is manipulation of profit perfect okay any other expense you can think of that you make a provision for no fine okay contingent liability contingent liability as I said there can be two things possible obligation or present obligation okay possible obligation that arises from past events and existence will be confirmed only by occurrence or non occurrence of one or more uncertain future events which is not wholly within the control of the enterprise so there is a possible obligation which might arise in future that obligation depends upon happening or not happening of a future event and that future event is not in my control that is a possible obligation for example a court case very simple the contractor died midterm before completing is that what you mean such a situation in a building contract when the institution has executed a building contract with a contractor but the contractor died contractor could not complete the contract but he died no but what liability do we have so the work will have to be re-advertised no but do we have a institution have a liability we lose time we lose time we lose time but we do not have to pay someone right no no but then we have to re-tender the work the remaining work so cost may so I cannot make a contingent liability that tomorrow if the earthquake occurs then I will lose some expenses that is not a contingent liability occurs means the contractor before 31st March yes yes and the remaining work had to be re-tender and cost difference will be there no that is not a contingent liability because it is not a past event it is a future event future event is what what is a liability for construction of building will happen in future and hence I will have to make the payment to the contractor in future I think it is a case of capital commandment that needs to be declared in the notes to the accounts not continual liability the estimated amount of contract remaining to be executed I estimated amount of contract remaining to be executed yes but that is for existing contract yes not for the new contract so she says the existing contract gets over because the contractor has died it is a new tender new contract for the remaining part because there is loss of time and usually if it is the same contractor when there is loss of time there is penalty livibe no ma'am but still it will not be a contingent liability alright thank you sir in case there is more provision made earlier and more liability is there so in future we came to know I think it is no more liability then you reverse the provision and for that otherwise also I suppose less liability provision is made then we increase then the balance is created or charged to expense in the next year so if I created a provision of 80 rupees actual expenditure is 100 rupees 20 rupees I charge in the next year when I know the actual amount whether there will be any void objection I believe auditor may object that why you have made more provision earlier and now you are reducing it I think there may be some kind of void objection later on see provision is an estimate estimate can go wrong estimate may not be perfect that is why it is a provision if it was perfect it would have been a liability because there is always one para that my colleague may agree that's what I am saying provision can never be for these things provision is not made fine next year we will make it sometime there may be objection that over provision has been made provision is an estimate whatever changes you have to provide in the current year whatever change in the provision whether excess or short or whatever will be provided in the current year but the thing fact is that provision and liability changes the balance sheet in fact still drastically it changes still it is maximum it may be a prior paid item if it was a error in the prior paid it can be a prior paid item but it will be provided in the current year okay do you make a disclosure of any provision or how do you disclose provision when you prepare financial statements in the notes in the notes accounts what do you write next year we just write these are the provisions and these are the amounts so this is the this is how it should be presented opening balance new provision reversal of existing provision closing balance these four things are mandatory opening balance this is there in the notes this you have to give in the notes opening balance reversal of opening balance or reversal of any provision new provisions and closing balance these four information has to be given as a payment made during the year that is also there so reversal is payment made during the year okay okay when you make payment you reverse the opening yes accounts format is for accounts it's not for notes this is for notes format is for balance income and expenditure receipts and payment is the format for notes also notes to accounts also is part of that so then this needs to be added because this is required by accounting standard 29 is there any is there any tool to estimate court case that the lawyer will estimate you have a lawyer representing your case right you or you yourself do it lawyer is there council is there right that council will estimate you and if it cannot be estimated suppose it is very initial stage then you have to say that the amount cannot be a certain because it is very initial stage if amount can be estimated you give the amount if it cannot be estimated you state that the amount cannot be estimated because this estimate is going to be different when judgment estimates will always be different from actual sir estimates will always be different there will be no perfect estimate sir it will be done internally only because certain cases will be done it can be done internally if it cannot be done you can take help of your lawyer or council and then you can estimate that is the max you can do sir should this disclosure come along with the PBRCRs figure should this disclosure come along with PBRCRs figure so yes it will have 2 columns 2013-2012 so it will have both okay contingent liability I said there can be a possible obligation which will confirm in future based on happening or not happening of a certain event present obligation also can be a contingent liability if it arises from past event but it is not recognized why because it is not probable that outflow of resources is required to settle the obligation that means I feel I will not have to pay that any amount to settle the obligation why so because I have appealed or I think I will settle it out of quote at a lower amount or I feel I can go to a higher quote or whatever way so I feel there will be no outflow of resources then it is a contingent liability reliable estimate cannot be made of the obligation so if I cannot estimate the amount of the obligation then again even if it is a present obligation I do not know the amount then I cannot make a contingent I cannot show it as contingent liability is it clear I cannot provide it as a liability because I do not know the amount so it will go as contingent liability so even if it is a present obligation in two scenarios one I am not sure whether I will be required to pay this possibility I will not be required to pay and second the amount cannot be estimated in these two scenarios I will make it a contingent liability and not a liability example of possible obligations pending court cases income tax investigations guarantee given by a company to bank okay when do you recognize contingent assets or do you disclose contingent assets no we are conservative we follow conservative approach we do not disclose contingent assets we only disclose contingent liabilities so basically asset is recognized when you are virtually certain then you recognize it contingent asset if it is more than 50% then you disclose it if it is less than 50% you do not disclose it so if it is probable you are allowed to disclose if it is possible or remote you do not disclose example example is I file a case against someone else okay I file a case against someone else there is a chance that I will win and the probability of me winning is higher that means I will win compensation in that case I can record it as contingent asset I have not won so I cannot record it as income because I have not won the case there is a chance that I can win the case and the chances are higher than 50% then I can show it as disclose it as contingent asset liability if it is virtually certain recognize even if it is probable but reliably measurable you can still recognize or you still have to recognize contingent liability if it is probable you disclose if it is possible you disclose but if it is remote you do not disclose any question what is contingent liability by any organization liability can be converted into contingent liability only if amount cannot be estimated at all otherwise it is a liability I just give an example suppose there is a court case going on and the department has lost the case in the high court but there is no intent to make the payment liability is there suppose the court has given no intention to make the payment and they file they know it that they will lose in the supreme but they just prolong the case they can convert it into a contingent liability for the next 3, 4, 5, 6, 10 years 10 years yes so the liability arises when we actually enter into a contract right sir for example we enter into a contract with CPWD for construction of a building now the preliminary estimate it says the cost of the building is 8 crores and accordingly we have deposited 8 crores with the building now the building is completed but when submitting the form 65 the CPWD says that the cost of the building is 10 crores instead of 8 crores so the university has actually entered into contract for 8 crores but the balance of 2 crores does the liability arises on behalf of the university because the contract is only for 8 crores but they say it is 10 crores sir this is operational question and not accounting question if you think the liability arises I can give you the accounting for that liability because sir while it is a legal question it is while closing the account where you see form 65 it says the cost of the building is 10 crores will you pay 10 crores to that person that is what because the decision is pending the university has not taken if decision is pending then that 2 crores will be contingent liability 8 crores will be liability entire 10 crores will not become contingent 8 crores it is final you have to pay at least 8 crores you show it as liability 2 crores is not final you show it as contingent liability just last 2 minutes to explain or to decide when it is contingent liability when it is provision when it is a liability basically you have to decide first is it a present obligation if it is a present obligation then whether the amount and timing is certain if the amount and timing is certain it is liability if the amount or timing is uncertain and the obligation is present then it is provision a present obligation becomes a contingent liability if the outflow is not probable or amount cannot be reliably estimated if it is not a present obligation it is a possible obligation then it becomes a contingent liability okay the same thing in a different way or different fashion is represented by the decision tree above you decide whether it is a present obligation if yes whether the outflow is probable again yes whether you can estimate reliably the amount then you make a provision if it is not a if outflow is not probable or estimate cannot be made reliably then it is a contingent liability and if the outflow is possible obligation is possible again it is a contingent liability everything is clear then if the boxy and MHRD will hope that you will implement it soon at your institutes and you will do proper accounting based on all the accounting standards okay then thank you so much