Contingent Liabilities Essay Example | Topics and Well Written Essays - 750 words

Contingent Liabilities - Essay useFrom this definition, it hobo be viewed from two aspects. The first aspect of the definition of provisions describe that the provisions be actually the indebtedness. commissariat are directly referred to as the liabilities of the business but not the usual and public liabilities which are acknowledge in the balance sheet of the business. Provisions are the special type of liability of the business that is described as an new(prenominal) head in the capital and liabilities portion of the balance sheet.The other main feature described by the definition of the provisions is that it is a liability of un authentic touchstone and uncertain clock. It means that the provisions are not certain in terms of their amount and clock but their nature is known to the accountant. It is known that a certain outlay of certain type is difference to take manoeuver in the future but the exact amount and exact time of the expense is not known to the accountant of the business. Therefore, provisions are the best hazards of the expenses that are going to take place in the future.Liability is defined in the International Accounting Standards as the baffle obligation as a issue of past events and the settlement of which is expected to result in an leakage of resources. This definition of liabilities withal describes the nature and the expected outcome of the liability on the overall business. Hence, a liability is a present obligation which has arisen due to the result of past events and in order to settle that obligation it is probable that the outflow of resources will happen in the near future. Hence the provision is the preparation of the liability whose amount and timing is uncertain but there is surety that the liability will arise at some focalise in time sooner or later in the future. The concept of provisions provide the accountants with a cushion time to get themselves prepared for the issues that are to rise in the future and th erefore, nevertheless money for the settlement of future liabilities in the present time. The main point in the provisions is that it is the best estimate of the future amount in present time. IAS 37 recognizes the problem of provisions in accounting and provides a rule to recognize the provision s in the balance sheet. IAS 37 says that the provisions should be recognized by an entity if and only ifa present obligation (legal or constructive) has arisen as a result of a past event (the obligating event),payment is probable (more likely than not), andThe amount can be estimated reliably.These are the rules which part the entity when to recognize a provision in the balance sheet. Firstly an obligation has arisen as a result of past events and it is also probable that the payment is to be made for that obligation and the amount of the payment can be reliably measured. These rules are used in many countries of the world to recognize the provisions in the balance sheets of the business es and are successful in addressing the problem of provision recognition in the balance sheet. Provisions provide the detailed training about liabilities facing the entity. Liabilities like trade creditors etc. provide the information about the liabilities of the business to be paid by the business and the amount and timing of which are certain at present. However, the presence of provisions in the entitys balance sheet prepares those responsible for decision making, to arrange and save the