A company has given a guarantee to the court for payment of Income-tax dues of Rs. 5 lakhs one of its subsidiaries.comment as a auditor

Auditing and Assurance Revision Questions and Answers

By giving the guarantee, the company has incurred a contingent liability. If the subsidiary fails to make the payment, the Company would be obliged to honor the guarantee. Therefore, this should be disclosed as a contingent liability in the notes to accounts of the company.

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