Ch.12 Contingencies

Question 1

What is a contingent liability

Answer 1

A potential liability form a past event for which a future independent event will determine whether the outflow of economic benefits is required

Question 2

What are the required disclosured for contingenies?

Answer 2

Description of the nature, timing, and uncertainty of the payments.
Amount expected to be reimbursed
Carrying amount at the beginning and end of the period
Increases, decreases, reversals of unused amounts and increased due to passage of time during the year

Question 3

IFRS - when are contingent liabilities required to have a provision

Answer 3

• Entity has a present obligation arising as a result of a past event
• it is considered probable that the entity will have an outflow of economic resources
  The entity is able to make a reliable estimate of the outflow of economic resources

Question 4

When do you need to record something?

Answer 4

Under IFRS it is whenthe liability is probable (more likely than not) - must also decide if it is measurable

Question 5

What do you do if there is a range of outcomes?

Answer 5

The provision should record using the most likely outcome.

If there are multiple likely outcomes, the weighted average is used

Question 6

what happens if criteria for recognition is not met?

Answer 6

Do not record, but disclose

Do not record or disclose

Question 7

When do you disclose and not record?

Answer 7

When it is possible but not probable, you would need to disclose the liability in the notes. It is also needed when it is probable but amount is unknown.

Question 8

When do you not disclose or record?

Answer 8

When the outcome of a contingency is remote

Question 9

When do you record a contingent asset?

Answer 9

Under IAS 37, you are not allowed to recognize a contingent asset.

But you are in ASPE if you are 100% certain

Question 10

What are the differences between IFRS and ASPE

Answer 10

ASPE uses the term contingent loss instead of provision. IFRS uses contingent asset but ASPE uses contingent gain.

Secondly, ASPE uses the term likely which is considered a higher bar than probable.

Third, IFRS uses the weighted average if there are multiple likely items, but ASPE only the minimum amount is disclosed in the financial statements

Furthermore, disclosure requirements are less only

• nature
• estimate of the amount of the loss
• exposure to loss greater than the amount already accrued