IAS 37 - Provisions (+ Liabilities + Contingent) Flashcards
what is a liability?
present obligation resulting from a past event for an entity to transfer an economic resource
when do we recognize a liability?
when it meets the definition and recognition criteria (measurable and probable)
what is a provision?
a liability of uncertain timing and amount
what is a contingent A/L?
meets the definition but not recognized, as its existence will only be confirmed by a future event that is not within the entity’s control
what do we disclose for contingent A/L?
- nature
- financial impact
- uncertain factors
when do we recognize a provision?
if:
- present obligation exists
- probable outflow of EBs
- reliable estimate can be made
how do we deal with reimbursements for provisions?
we recognize them when virtually certain they will be received when the entity settles its obligation. we recognize it as a separate asset and offset with provision expenses ONLY.
what do we do annually for provisions?
review and adjust to reflect current best estimate
what is a commitment?
when the future company commits to buy an asset at a future date – they will have an obl in future
how do we account for commitments?
disclose only
what is the difference between a contingent A/L and a commitment?
contingent = obligation actually exists due to past event commitment = obligation does not yet exist
how do we account for provisions for sales returns?
DR Revenue, CR Provision
DR Right to return, CR Cost of sales
how do we account for provisions for warranties?
DR Inventory repairs or COS
CR Provision for warranty
what gets rid of provision for warranty?
DR Provision
CR Bank
what is an onerous contract?
a contract where the unavoidable costs exceed the benefits to be received. the entity will have to fulfil the contract and can incur a penalty if they do not.
what do we measure onerous contracts at?
the least net cost; the lesser of:
- costs to fulfil the contract
- compensation / penalties arising from failing to fulfil the contract
how do we recognize an onerous contract?
as a provision; also should consider impairment of assets relating to the contract
at what amount do we recognize reimbursements?
at amount received, but cannot exceed the amount of the provision
what are some examples of restructing?
- sale/termination of a business line
- closure of locations
- changes in mgmt structure
when do we recognize a restructuring provision?
if:
- present obligation exists
- probable outflow of EBs
- reliable estimate can be made
when does a present obligation exist to restructure?
if, at reporting date:
- entity has detailed formal restructuring plan
- has raised a valid expectation to those affected (either through implementing plan or announcing)
what are some qualifying restructuring costs?
necessary costs caused by restructuring:
- costs of making employees redundant
- retrenchment packages
- lease termination costs
what is not included in qualifying restructuring costs?
- costs associated with ongoing activities
- retraining / relocating continuing staff
- marketing
- investment in new systems
- any gain from the expected disposal of assets
what can restructuring trigger?
- asset impairment
- distribution of assets to SH
- assets being classified as held for sale
what do we do with future operating losses?
- no disclosure, nothing
- they may indicate impairment of an asset though
- no past event
which changes in decommissioning liability will impact PPE amount directly?
- outflow to settle obligation
- changes discount rate used
- changes period of discounting
which changes in decommissioning liability will impact P/L?
unwinding of the discount
what could restructuring indicate?
impairment
what is the process for non-cash distributions to owners?
1) declare the dividend as normal at the FV of the assets distributed
2) remeasure the payable at reporting date if relevant (for a FV adjustment, same JE as before usually)
3) settle the payable with the non-cash asset and any diff = P/L
