Chapter 14 - Provisions Flashcards

1
Q

What is a provision?

A

Liability with uncertain timing/amount

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2
Q

What is the recognition criteria for a provision?

A

All of these need to be met:

  • present obligation (legal or constructive) about past event
  • probable economic outflow of economic benefits to settle obligation
  • reliable estimate of amount
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3
Q

How to workout provision for single obligaton?

A

Most likely

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4
Q

How to workout provision for large population of items?

A

Expected value method

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5
Q

What is the accounting entry to CREATE provision?

A

Dr expense

Cr provision

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6
Q

What is the accounting entry to USE provision?

A

Dr provision
Cr cash

difference (p or l)

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7
Q

Can you have a provision for disposal of assets?

A

No

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8
Q

Can you have a provision for future operating losses?

A

No

Happen in future

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9
Q

What is an onerous contract?

A

unavoidable costs

lower of cost to fulfill contract

any compensation/penalty from failing to fulfill it

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10
Q

Can you have a provision for an onerous contract?

A

Yes

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11
Q

Can you have a provision for restructuring?

A

only if:

  • detailed / formal / approved plan exists
  • plan announced to those affected (employees)
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12
Q

What should the restructuring provision include?

A
  • Direct expenditure - YES

* Costs with ongoing activities - NO

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13
Q

If restructuring, can redundancy costs be part of the provision?

A

Yes, direct expenditure

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14
Q

If restructuring, can staff retraining costs be part of the provision?

A

No, ongoing

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15
Q

What is the accounting entry for dismantling provision?

A

Dr PPE

Cr provision

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16
Q

How do you deal with dismantling provision?

A

Discount cost to present value

Capitalise (brings to present location/condition)

REMEMBER TO DEPRECIATE IT

17
Q

What should the provision disclosure include?

A

brief description of nature and timing

any uncertainties

any reimbursement

18
Q

What is the treatment of UNCERTAIN liabilities?

A

Remote = ignore

Possible ( < 50%) = Disclose as contingent

Probable ( > 50% ) = Provide

19
Q

What should you DISCLOSE if a CONTINGENT liability?

A

brief description of nature

estimate financial effect

any uncertainties about amount/timing

possibility of reimbursement

20
Q

What is the treatment of UNCERTAIN asset?

A

Remote = ignore

Possible = ignore

Probable = Disclose as contingent

Virtually certain = Recognise

21
Q

What is the double entry to record a virtually certain asset?

A

Dr receivable

Cr other income

22
Q

When can you recognise a reimbursement?

A

Reimbursement = Virtually certain

Claim = probable

23
Q

You can only use provision for the expense it was originally created for.

TRUE/FALSE

A

TRUE