CA Inter P1 · Chapter 4 · Question 6 of 8
Case: Meera Exports Ltd has filed a claim for damages against a supplier. Legal counsel believes it is probable, but not virtually certain, that the company will receive ₹12,00,000. Under AS 29, the company should:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Not recognise the asset and not disclose it in the financial statements; it may be disclosed in the report of the approving authority
Explanation
A probable (but not virtually certain) inflow from a pending claim is a contingent asset. AS 29 prohibits recognition of contingent assets, and a contingent asset is not disclosed in the financial statements; where an inflow of economic benefits is probable, it is usually disclosed in the report of the approving authority (the Board of Directors' report, in the case of a company). The asset and related income are recognised only when the inflow becomes virtually certain.
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