Page 6 - 1. COMPILER QB - INDAS 1

Since there is nothing to show that there is a present obligation, no provision will be made.

As per para 27 of AS 29, a contingent liability is recognized only where the possibility of an outflow

of resources embodying economic benefits is not remote. Since there is no onerous liability as on the
reporting date, the possibility of an outflow becomes remote. Therefore, no contingent liability will

arise. In fact, the management has wrongly worded it as ‘onerous liability’ in its notes to accounts.
Onerous liability arises only when the unavoidable costs of meeting the obligation under the contract

exceeds the economic benefits expected to be received from it. This note should be eliminated.

2. The demand notice from the tax department (that is under litigation) is a clear instance of a
‘contingent liability’. Accordingly, the note should be revised as –

‘Contingent Liability:

There is a demand notice INR 12 Million, which is under CIT (Appeals) as on the reporting date.

3. The Statement to Profit and Loss needs to represent earnings per share, as per AS 20.

Revised extracts of the financial statements

Balance Sheet (INR in Million)

Note No. As at March 31, 20X1
EQUITY AND LIABILITIES

Shareholders’ funds
Share capital 2,000
Reserves and surplus 1 3,000
Non-current liabilities

Long-term borrowings 2 10,000
Current liabilities
Trade payables 600

Short-term provisions 1,500
Other current liabilities 4 1,410
TOTAL 18,510
ASSETS

Non - current assets
Fixed Assets 11,310

Deferred Tax Assets 3 600
Current assets
Inventories 2,000
Trade receivables 5 2,200

Cash and Cash Equivalents 2,400
TOTAL 18,510

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