CHAPTER 4: CONTIGENT ASSET AND LIABILITY

Question 1

Which is the correct definition of a provision?

Answer 1

A liability of uncertain timing or uncertain amount

Question 2

A legal obligation is an obligation that is derived from all of the following, except:

Answer 2

An established pattern of practice

Question 3

It is an event that creates a legal or constructive obligation because the entity has no other
realistic alternative but to settle the obligation

Answer 3

Obligation event

Question 4

An outflow of resources embodying economic benefits is regarded as “probable” when

Answer 4

The probability that the event will occur is greater than the probability that the event
will not occur

Question 5

When the provision involves a large population of items, the estimate of the amount

Answer 5

Reflects the weighting of all possible outcomes by their associated probabilities.

Question 6

When the provision arises from a single obligation, the estimate of the amount

Answer 6

Is the individual most likely outcome adjusted for the effect of other possible
outcomes.

Question 7

Which statement is incorrect when the expenditure required to settle a provision is expected
to be reimbursed by another party?

Answer 7

The reimbursement shall be “netted” against the estimated liability for the provision.

Question 8

A provision shall be recognized for

Answer 8

Obligations for plant decommissioning costs

Question 9

Provisions shall be recognized for all of the following, except

Answer 9

Future refurbishment costs due to introduction of a new computer system

Question 10

Contingent liabilities will or will not become actual liabilities depending on

Answer 10

The outcome of a future event

Question 11

A contingent liability shall be recognized when

Answer 11

The amount of the loss can be reliably measured and it is probable prior to issuance
of financial statements that a liability has been incurred.

Question 12

How should a contingent liability be reported in the financial statements when it is reasonably
possible?

Answer 12

As a disclosure only

Question 13

Reporting in the financial statement is required for

Answer 13

Loss contingency that is probable and measurable

Question 14

Which of the following is not considered when evaluating whether or not to record a liability
for pending litigation?

Answer 14

The type of litigation involved