Discount when the time-value effect is material
Ind AS 37 paragraph 45 requires present-value measurement where the time value of money has a material effect. Paragraph 47 specifies pre-tax rates reflecting current market assessments and liability-specific risks, excluding risks already adjusted in estimated cash flows. There is no universal 5% rate or fixed materiality rupee threshold in these paragraphs. This measurement guide, checked on 27 October 2026, applies to obligations within Ind AS 37; another applicable standard may govern a particular liability. ICAI Ind AS 37: paragraphs 45–47, 51–52, 59–60 and 84.
Start with the expected settlement cash flows and dates
Document the obligation, expected expenditures, timing and evidence supporting the best estimate. Split payments over their expected settlement dates; discounting a multi-year schedule as if every payment occurs on the final date understates earlier outflows. Include future events only on the standard’s supported-evidence basis. Do not reduce the provision by an expected asset-disposal gain simply because selling the asset may help finance settlement; paragraphs 51–52 address that separate issue. ICAI Ind AS 37: paragraphs 45–47, 51–52, 59–60 and 84.
Match the rate to the cash-flow assumptions
Record whether inflation and risks are already embedded in the expenditure estimates and ensure the rate is consistent. A generic corporate borrowing rate or post-tax WACC is not automatically the correct paragraph 47 rate. Identify the source, currency, date and term of the rate assessment. Do not add a second risk adjustment in the rate for an uncertainty already reflected in the cash flows. A spreadsheet giving a lower number is not evidence that the chosen rate is supportable.
Separate unwinding from changed assumptions
Paragraphs 59–60 require reporting-date review and identify the passage-of-time increase in a discounted provision as borrowing cost. A change in expected settlement amount, payment date or discount rate is not the same as one year’s unwind under unchanged assumptions. Reconcile each movement and consider the appropriate treatment under the applicable standards where the provision is associated with an asset; this article does not prescribe one journal for every decommissioning adjustment. ICAI Ind AS 37: paragraphs 45–47, 51–52, 59–60 and 84.
Keep a transparent measurement and sensitivity file
Retain each cash-flow line, period, discount factor and resulting present value, with the rounding policy. Recompute totals at full precision before rounding displayed amounts. Sensitivity to a hypothetical rate is useful for review but does not permit management to choose whichever scenario minimises the liability. A difference between undiscounted and discounted amounts is not an immediate cash saving or a recoverable asset.
Reconcile the measurement to provision disclosures
Tie the approved present value to the ledger and class movements, including the relevant discount-related changes under paragraph 84. Record why an undiscounted amount was used if the time-value effect is immaterial. Preserve evidence supporting assumptions rather than rolling last year’s rate forward without review. The examples use fictional end-of-year cash flows, annual compounding and explicitly assumed rates; final amounts are rounded to the nearest rupee for display, not as a universal accounting rule. ICAI Ind AS 37: paragraphs 45–47, 51–52, 59–60 and 84.
Applicable primary references
ICAI Ind AS 37: paragraphs 45–47, 51–52, 59–60 and 84
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Single two-year outflow
A supported ₹12,10,000 payment is assumed due in two years and the appropriate pre-tax rate is assumed 10%. Present value is ₹12,10,000 ÷ 1.10² = ₹10,00,000. The ₹2,10,000 difference is the model time-value effect, not a current cash receipt.
Illustrative example 2: Two settlement dates
Assume ₹5,50,000 at the end of year one and ₹6,05,000 at the end of year two, both discounted at 10%. Present values are ₹5,00,000 and ₹5,00,000, total ₹10,00,000. Using only the final payment date for both would be incorrect.
Illustrative example 3: One-year unwind
Opening present value is ₹10,00,000, with a 10% rate, no payments and unchanged estimates. One full year’s passage-of-time increase is ₹1,00,000; carrying amount becomes ₹11,00,000. Keep the borrowing-cost movement distinct from settlement.
Illustrative example 4: Rate sensitivity
For an assumed ₹11,00,000 outflow in one year, present value at 10% is ₹10,00,000; at 5% it is ₹10,47,619 rounded. The ₹47,619 sensitivity does not establish which rate is legally appropriate under the standard.
Illustrative example 5: Changed expenditure estimate
Immediately before remeasurement, carrying amount is ₹10,00,000. Assume revised supported expenditure of ₹13,31,000 is now due in two years and the appropriate rate remains 10%. Revised present value is ₹11,00,000, an increase of ₹1,00,000. The hypothetical calculation isolates changed estimates, not an automatic borrowing-cost classification.
Illustrative example 6: Illustrated materiality assessment
A ₹1,00,000 outflow in one year discounted at an assumed appropriate 1% is ₹99,010 rounded; the difference is ₹990. That amount is input to the entity’s contextual materiality assessment, not a statutory exemption threshold.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm standard scope | Obligation and any more specific standard. |
| 2 | Prove the best-estimate cash flows | Expected expenditure and evidence. |
| 3 | Map settlement dates | Individual expected payment periods. |
| 4 | Assess time-value materiality | Context and quantified effect. |
| 5 | Document rate selection | Pre-tax basis, currency, term and current market evidence. |
| 6 | Avoid risk duplication | Cash-flow and rate assumption cross-check. |
| 7 | Recalculate present values | Full-precision factors and totals. |
| 8 | Separate movements | Unwind, settlements and estimate/rate changes. |
| 9 | Reconcile ledger and disclosures | Approved measurement and class roll-forward. |
| 10 | Retain sensitivities and approval | Review scenarios, rounding and final assumptions. |
Sixteen practitioner FAQs
1. Must every provision be discounted?
Paragraph 45 requires it where the time-value effect is material.
2. Does the standard prescribe one numerical materiality threshold?
Not in these paragraphs; assess the entity’s facts.
3. Is the required rate pre-tax?
Yes, under paragraph 47.
4. Is corporate WACC automatically appropriate?
No. Establish the liability-specific, current-market basis required by the standard.
5. Can the same risk be included twice?
Do not reflect in the rate risks already adjusted in the cash flows.
6. Should all payments use the final settlement date?
No. Respect the expected timing of each cash flow.
7. Can inflation assumptions be ignored?
Use cash-flow and rate assumptions consistently.
8. Does discounting create cash income?
It measures the liability; the arithmetic difference is not a cash receipt.
9. Can expected asset-sale gains reduce the provision?
Do not treat financing from a hoped-for disposal as an automatic measurement deduction.
10. How often are provisions reviewed?
At each reporting date under paragraph 59.
11. What is passage-of-time unwinding?
The increase due solely to time under the assumed unchanged measurement basis.
12. How is that unwind classified by paragraph 60?
As borrowing cost.
13. Is every remeasurement increase borrowing cost?
No. Identify changes in assumptions separately and apply the relevant standards.
14. Can sensitivity testing justify choosing the lowest liability?
No. The selected assumptions need independent support.
15. Must every displayed amount use nearest-rupee rounding?
That is an illustration convention here, not a universal rule prescribed by the standard.
16. What should the final review reconcile?
Cash-flow schedule, rates, present value, movements, ledger and disclosures.
Conclusion
Measure material long-term provisions using supported cash-flow dates and pre-tax discount rates, avoiding duplicate risk adjustments in cash flows and discount rates.