Ch12 Liabilities and Provisions

Question 1

Definition of a liability.

Answer 1

Liability:

• is a present obligation that may be legally enforceable,
• results from past transactions or other past events,
• is expected to be settled by giving up resources (cash payment, transfer of other assets, provision of services, …).

Question 2

What is provision?

Answer 2

Provision is a liability of uncertain timing OR amount.

Question 3

What is onerous contract?

Answer 3

Onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be
received under it.

Question 4

Contingent liabilities are not recognized as liabilities, because they are:

Answer 4

• Possible obligations (to be confirmed whether the entity has a present obligation that could lead to an outflow of resources embodying economic benefits) OR
• Present obligations that do not meet the recognition criteria in this standard (timing and / or amount of liability can not be defined; or they are not a result of past event)