IAS 37: Provisions, Contingent liabilities & Contingent Assets

Question 1

What is the criteria to recognise a Provision?

Answer 1

1) Present obligation (legal or constructive) from past event.
2) Probable that there will be an outflow of resources of economic benefit required to settle
3) Reliable estimate made about the amount obligated

Question 2

How can a provision be measured?

Answer 2

1) Best estimate.
2) Present value.
3) Expected value. (%amount+%amount+%*amount)

Question 3

What are the recognition & measurement rules of provisions?

Answer 3

1) Future Operating Losses: No provision due to not being present obligation.
2) Onerous Contract: Obligation cost from contract outweigh economic benefits.
Restructuring Costs: If criteria are satisfied.

Question 4

What are contigent laibilities & assets.

Answer 4

CL: Present obligation is there, amount is of low probability
CA: Possible asset is there, amount is of low probability