5. IAS 7: Provisions, Contingent Liabilities and Contingent Assets Flashcards
What is a provision?
A liability of uncertain timing or amount.
What is a contingent liability?
A liability that may result dependent on the outcome of uncertain events.
How likely does a provision need to be for it to be probable?
More than 50% likely.
What is a contingent asset?
An asset that may be gained, but it is uncertain.
How likely does a provision need to be for it to be possible?
Between 5-50% likely.
How likely does a provision need to be for it to be remote?
Less than 5% likely.
How is a probable provision treated in the Statement of Financial Position?
The liability is recognized.
How is a possible provision treated in the Statement of Financial Position?
The liability is not recognized, but is disclosed by note.
How is a remote provision treated in the Statement of Financial Position?
It is not recognized, nor disclosed by note.
How is a contingent liability disclosed if the likelihood is not remote?
Not accounted for in statements, only disclosed by note.
How is a contingent liability disclosed if the likelihood is remote?
Not disclosed at all.
When does a contingent liability become a provision?
If an event before the year end gives rise to the potential liability (e.g. a lawsuit).
How is a contingent asset disclosed if the likelihood virtually certain?
It is not a contingent asset and is recognized in the statements.
What is the likelihood needed for a contingent asset to be virtually certain.
Greater than 95%.
How is a contingent liability disclosed if the likelihood is probable?
It is not accounted for on the financial statements, but is disclosed by note.
