Chapter 5 - IAS 37 - Provisions & Contingent Liabilities

Question 1

Definition

• Provision

Answer 1

A liability of uncertain timing or amount

Question 2

Definition

• Liability

Answer 2

A present obligation as a result of past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

Question 3

A provision shall be recognised as a LIABILITY in the Financial Statements when:

Answer 3

• It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
• A reliable estimate can be made about the amount
• An entity has a present obligation as a result of a past event

Question 4

Disclosure of Provisions (Notes):

Answer 4

• A brief description of the nature of the obligation and the expected timing of any outflows
• An indication of the uncertainties about the amount or timing of potential outflows
• The amount of any expected reimbursement of an asset

Question 5

Disclosure for each class of Provision:

Answer 5

• Carrying amount at beginning and end
• Additional provisions made in the period, including increases to existing provisions
• Amounts used (charged against) during the period
• Unused amounts during the period

Question 6

Definition

• Contingent Liability

Answer 6

A possible obligation as a result of past events, whose existence be confirmed by the occurrence or non-occurrence of one or more uncertain future even not wholly within the entities control

Or;

• It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation
• The amount cannot be reliably measured

Question 7

Disclosures of Contingent Liabilities:

Answer 7

• An estimate of its financial effect
• An indication of the uncertainties relating to the amount or the timing of any outflow
• The possibility of any reimbursement

Question 8

Definition

• Contingent Asset

Answer 8

Is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity

DISCLOSURE: When an inflow is probable, a brief description of the nature of the contingent assets at the end of the reporting period is required, and where practical - an estimate of their financial effect

Question 9

Definition

• Obligating Event

Answer 9

Is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation

Question 10

Definition

• Legal and Constructive Obligations

Answer 10

LEGAL OBLIGATION:

• A contract
• Legislation
• Other operation of law

CONSTRUCTIVE OBLIGATION:

• By an established pattern of practice. E.g - Policies such at price match etc.
• The entity has created a valid expectation that it will discharge particular responsibilities