Siemens Limited (henceforth, Siemens) was incorporated in the year 1957 and is listed on the BSE and NSE. We provide below the schedule related to provisions and contingencies of Siemens for FY2010.

Disclosure relating to Provisions

Provision for warranty

Warranty costs are provided based on a technical estimate of the costs required to be incurred for repairs, replacement, material cost, servicing and past experience in respect of warranty costs. It is expected that this expenditure will be incurred over the contractual warranty period.

Provision for liquidated damages

Liquidated damages are provided based on contractual terms when the delivery/commissioning dates of an individual project have exceeded or are likely to exceed the delivery/commissioning dates as per the respective contracts. This expenditure is expected to be incurred over the respective contractual terms upto closure of the contract (including warranty period).

Provisions for loss orders

A provision for expected loss on construction contracts is recognised when it is probable that the contract costs will exceed total contract revenue. For all other contracts loss order provisions are made when the unavoidable costs of meeting the obligation under the contract exceed the currently estimated economic benefits.

Contingencies

The Company has made provisions for known contractual risks, litigation cases and pending assessments in respect of taxes, duties and other levies, the outflow of which would depend on the cessation of the respective events.

The movements in the above provisions are summarised below:

Case Questions

(a) What are the new jargons you have come across in the above disclosure of the contingent liabilities? Clarify them.

(b) From the above contingent liabilities, what can you make out as the company’s main business activities?

(c) Discuss the application of the relevant accounting standards on the schedule given.

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Siemens Limited Schedules to the Financial Statements as at 30 September 2010 Provisions Pension Leave wages Medical benefits Silver Jubilee Warranty (Refer Schedule 25) Loss order (Refer Schedule 25) Liquidated damages (Refer Schedule 25) Contingencies (Refer Schedule 25) Proposed dividend Tax on proposed dividend (Currency: Indian rupees thousands) 2009 2010 166,332 228,961 202,067 82,647 2,882,574 661,819 6,718,140 2,763,991 1,685,801 279,990 15,672,322 174,983 240,841 70,754 74,418 2,441,545 891,614 5,651,320 2,106,815 1,685,801 286,502 13,624,593