Chapter 11 - Provisions and deferred taxation Flashcards
Definition of a provision
A liability of uncertain timing or amount
Obligating event - give definition
Past event which leads to a present obligation. The entity has ‘no realistic alternative’ to settling the obligation created by the event
Legal obligation - give examples
Contract, legislation, any other operation of law
Constructive obligation - give examples
Derives from an entity’s actions via an established pattern of:
Past practice
Published policies
specific statement
Entity has created a valid expectation in other parties that it will discharge responsibility
Contingent asset
Possible asset arising from past events with uncertain amount of obligation and probable inflow of economic benefit.
It is not recognised but disclosed in the accounts.
Contingent liability
Possible obligation arising from past events
OR
Present obligation arising from past events with uncertain amount of obligation and probable outflow of economic benefit
OR
present obligation arising from past events with NON PROBABLE outflow of economic benefit
It is not recognised but disclosed in the accounts.
Taxable temporary differences
Undistributed profits of subsidiaries and associates
Development costs recognised as intangible asset in financial statements
FV adjustment that increases the assets of an acquired subsidiary on consolidation - this will increase assets in OCI and cause the tax effect gain to also be recognised in OCI
Deductible temporary differences
Tax losses that are carried forward to be set against future taxable profits
Unrealised profits on intra-group transactions
A provision for warranty costs that is recognised as a liability in the financial statements
Journal for deferred tax liability movement (deduction)
DR Deferred tax liability
CR P/L: Tax expense
Decommissioning costs calculation
= (Provision x depn rate) + (Provision x CC)
