Every business faces uncertainty — a pending court case, a product warranty, an environmental cleanup. AS 29 tells you exactly when to book a liability, when to just disclose it, and when to stay silent. Getting this wrong means misstating the balance sheet, and examiners love testing precisely this.
The core of AS 29 is the distinction between three concepts. A Provision is a liability of uncertain timing or amount — you recognise it in the books (debit P&L, credit Provision) when three conditions are ALL met: (1) there is a present obligation (legal or constructive) arising from a past event, (2) it is probable (more likely than not) that an outflow of economic resources will be required, and (3) a reliable estimate can be made of the amount. Think of Rajesh & Co. Pvt. Ltd. losing a case in the High Court — the verdict is against them, appeal is pending but lawyers say they'll likely lose ₹8 lakhs. All three conditions met → book a provision.
A Contingent Liability is either a possible obligation (outcome depends on future uncertain events outside the company's control) OR a present obligation where outflow is not probable, or where the amount cannot be reliably estimated. You do NOT recognise it — you only disclose it in the notes. A Contingent Asset is a possible asset from past events; you never recognise it (no entry), but if inflow is virtually certain, it's no longer contingent — you recognise the asset. If merely probable, just disclose in notes. If possible or remote, complete silence.
Measurement of provisions: Use the best estimate of the expenditure to settle the obligation at the balance sheet date. For a large population (e.g., warranty claims across thousands of products), use expected value (probability-weighted average). For a single large obligation (e.g., one big lawsuit), use the most likely outcome. Provisions must be reviewed each year and adjusted. You cannot use a provision for any purpose other than what it was originally created for — this prevents 'big bath' accounting. Also remember: provisions are discounted to present value only when the time value of money is material.