IAS 37: Provs, Cont't Liabs & Cont't Assets

Question 1

Provision

Answer 1

A provision is a liability of uncertain timing or amount

Question 2

Liability (IAS 37 Provs version!)

Answer 2

A present obligation as a result of past events.

Where settlement is expected to result in an outflow of economic benefits

Question 3

An Obligating Event

Answer 3

An obligating event is an event that creates a legal or constructive obligation
resulting in an entity having no realistic alternative to settling the obligation.

Legal derives from contract or legislation.
Constructive derives from an entity’s actions.

Question 4

Define

Contingent Asset

Answer 4

A POSSIBLE asset arising from past events

whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity’s control

Question 5

Define

Contingent liability

Answer 5

EITHER:
A POSSIBLE obligation arising from past events

whose existence will be confirmed only by the occurrence or no-occurrence of one or more uncertain future events not wholly within the entity’s control

(NB same as Cont Asset except ‘obligation’ not ‘asset’)
(NB the ‘possible’ means it’s not a liability or a provision.. those are certain and probable)

OR:
A PRESENT obligation that arises from past events
(ie. a liability)
BUT is not recognised because either

• It is not probable that an outflow of economic benefits will be required to settle the obligation
• The obligation cannot be measured with sufficient reliability.

Question 6

Conditions for recognising a Provision

Answer 6

1. Entity has a PRESENT Obligation (l or c) as a result of a past event
2. It is PROBABLE that an outflow of economic benefits will be required to settle the obligation
3. a RELIABLE estimate of the AMOUNT can be made

Question 7

How do provisions differ from liabilities

Answer 7

the uncertainty of timing or amount