I have a query regarding a case, which is like that:

A company have a practice to set off its creditors against it debtors and for that it gives a note for contingent liabilities , now the company don’t want to give the note for contingent liabilities as it is affecting its borrowing capacity , is it possible for company to do so, is there any case law for that, Please Guide me it is urgent.




Well, under IFRS it is not allowed to net the balance of receivables and payables. Maybe it is still allowed under local rules or habits. However, neither presentation affects the borrowing capacity. A bank will always ‘normalise’ a balance sheet in the format they require for internal approval processes. Hence it is more a question of who someone is talking to, a loan sales agent or an banking approval person.



So I suggest that the company just uses normal IFRS, separate receivables and payables and see what a bank is willing to borrow.

Kind regards,

My friend,


The situation is not like that as you understood, I have to tell u in detail, A company have some creditors say $ 1,000,000, the company also has a Debtor from whom an amount more than the company is liable to pay is receivable now through a legal agreement the company has endorsed his liability to that Debtor, but there is still a contingency that it may be possible that the debtors may not pay the amount for that purpose the company account that liability as a contingent one and make the note for that in his financial Statement, now the company don’t want that note in his financial statement due to some reasons,

Now the question, arises is there any explanation on the basis of which that note for contingencies can be ignored to be stated.


In short I am looking for some decisions or explanations in which it is explained that when a liability is not required to be treated as contingent even its liability to pay may arise in future


Ok, so there is a clear contract that connects the receivable and payable. The contingency arises from the uncertainty as to whether the receivable will be paid or not.

First item to consider would be: is there any thing about risk sharing in the contract regarding non-payment of the receivable?

Second: is the receivable and the payable long term? Or is it regularly renewed (i.e. amounts received and new sales invoices added to the receivable and amounts paid and new purchase invoices added to the payable?


If yes, then consider what the risk is of non-payment by the debtor, the company (not the auditor) has to make a case to proof that non-payment is a non-existing risk (they can ask for annual reports, credit reports etc. the conclusion would then have to be that there is no contingent risk of non-payment.

However, this is a very triggy item, so let the company it self take the lead in evidencing that the risk is no longer contingent.


The company can do neither. Under IFRS as well as under the company law, it is bound to show debtors and creditors separately, and MUST show the contingent liabilities on the balance sheet irrespective of its impact on its borrowing capacity. After all, the financial statements are meant to show a true, fair and complete view of a comapany’s state of affairs.Regards

AbhishekNot sure why you are looking towards IFRS for a solution when the corresponding IGAAP standard is more lenient in this regard and is already based on IAS 37.

The first question that you need to ask is ‘how contingent is this contingent liability’ and why would the Debtor not pay if there is a legal agreement in place.  You would still need to give a note in the accounts about the new arrangement and management’s view that the debtors would honour the agreement. Legal entitlement to offset is another issue that you need to look at.

In any case, the auditors would object to any exclusion of relevant details, unless the company is willing to have a qualified audit report.

> alsohas a Debtor from whom an amount more than the company is
> whichthat note for contingencies can be ignored to be stated.
> someoneis talking to, a loan sales agent or an banking approval

> messageis addressed. If you are not the intended recipient, please

Thanks every one for wonderful suggestions.

I agree with Mr. Saleem. Only such Creditors and Debtors can be set off where company has established legal right to do so. However, Contingencies and Commitments must be disclosed in the financial statements as IFRSs require, disregard of implications.