1 Jul 15, 08:26 AM subburathinam:
My dear CHM sir, Prudence in Accountancy and even the present Int.Standards, once a claim is made in a Court of Law, it is to be recognized and provision be made, however doubtful the ultimate result.
subburathinam: I.T.Dept of GOI has made a demand on retrospective basis on a multinational Company. They have disputed it and filed a case also. However, u may find a provision is made by them. In case, the case is decided favourably for them, they will reverse the provision made. Making a provision for a disputed liability does not mean recogniing a legal liability. It is protecting interests of all stakeholders. If it is not done, the company will face it squarely on the revenue year in which the judgement comes. Then the profits of that year will be hit . In case a provision made, it could be adjusted later depending on the outcome of the case, without subjecting the shareholders of that year. Hope I am better understood.
In our case, LIC is to subsidise the Pension Fund, as and when the latter is unable to meet the current year's liability. This has been going on also for sometime. I am sorry I started serious writing.
Court cases which have a monetary value are to be recognized and provided for in the balance sheet. This is Int.practice, and if someone does not follow it, it is his hell. u may see balance sheets.several big companies to gain a know of the current approved int. practice. It comes under International Accounting Standards. More we can interact on this point if i cd know ur cell no.
1 Jul 15, 12:11 PM
1 Jul 15, 12:11 PM
subburathinam: I.T.Dept of GOI has made a demand on retrospective basis on a multinational Company. They have disputed it and filed a case also. However, u may find a provision is made by them. In case, the case is decided favourably for them, they will reverse the provision made. Making a provision for a disputed liability does not mean recogniing a legal liability. It is protecting interests of all stakeholders. If it is not done, the company will face it squarely on the revenue year in which the judgement comes. Then the profits of that year will be hit . In case a provision made, it could be adjusted later depending on the outcome of the case, without subjecting the shareholders of that year. Hope I am better understood.
In our case, LIC is to subsidise the Pension Fund, as and when the latter is unable to meet the current year's liability. This has been going on also for sometime. I am sorry I started serious writing.