Chapter 5

Question 1

Which period will the tax liability represent in the financial statements?

Answer 1

The estimate of the year of the statements

Question 2

definition of a provision

Answer 2

A liability of uncertain timing or amount

Question 3

What is a warranty an example of

Answer 3

A provision liability. Costs that may be incurred and therefore paid for

Question 4

what is a contingent asset/liability and is it in financial statements?

Answer 4

An asset or liability which are uncertain in amount or timing and are not shown in financial statements

Question 5

what disclosure in the financial statements of provisions are to be made

Answer 5

• details of changes in provisions (additions, changes, used amounts, etc)
• A description of the provisions and expected timings
• an indication of the uncertainties regarding amount/timing

Question 6

Example of a contingent liability

Answer 6

A pending legal case

Question 7

difference between contingent liability and provision

Answer 7

contingent liability is a possible obligation

provision is a probably obligation

Question 8

what two reasons make a contingent liability into a provision

Answer 8

1. goes from being possible to probable
2. obligation is able to be measured reliably

Question 9

when would a contingent asset be allowed to feature in the financial statements?

Answer 9

When it is probable and not just possible

Question 10

when can changes be made to financial statements?

Answer 10

After year-end
Before authorisation for issue from the directors

Question 11

Examples of a contingent asset

Answer 11

1. A pending lawsuit that will result in a payout
2. Warranty
3. mergers and acquisitions
4. Estate Settlement