Chapter 19 - Provisions

Question 1

When do we recognize a provision

Answer 1

1) reliable measure
2) probable outflow of economic benefits
3) present obligation from past event

Question 2

Special scenarios of provisions

Answer 2

Provisions can not be recognized for future losses

Question 3

Onerous Contracts

Answer 3

Provisions are created for unavoidable costs:

1) net cost of fulfilling
2) penalties from failure to fulfill

Question 4

Provisions for restructuring

Answer 4

Restructuring provisions can only be recognized if there is a constructive obligation:

1) detailed formal plan
2) there is a valid expectation

Question 5

Contingent Liability

Answer 5

Thia is a possible obligation or a present obligation but isn’t recognized because it is not possible to reliably measure or outflow of resources is not probable

Question 6

Contingent Asset

Answer 6

If these are virtually certain then recognize in the accounts

If only probable then simply disclose in the notes to the financial statements

Question 7

Obligating event

Answer 7

A legal or constructive obligation which results in mo alternative but to settle the obligation