Ias 37 Question Practice

Question 1

Case - restructuring plan that has been announced but does not commence until 2 years.

Answer 1

Should not recognize a provision as external parties are unlikely to have a valid expectation that management is committed to the reorganization as the time frame allows significant opportunity for management to change the details of the plan

Question 2

Provision for warranty

Answer 2

Should be recognised because past event has created legal obligation to spend money on repair.
Company cannot avoid the cost of repair or replacement of goods for which warranty was given before year end

Question 3

Do we need a provision

Answer 3

1, is there a present obligation as a result of a past event ?
2, is an outflow of economic benefits probable as a result?
3. Is it reliably measurable? Assumed yes in case of no info to the contrary

Question 4

Law is virtually certain with retrospective effect

Answer 4

Recognize

Question 5

Provision for environmental damage

Answer 5

Asset dr

Provision cr

Question 6

27 a iii Kaplan

Date of provision

Answer 6

Provision should be made on the date of the obligating event ie date on which the event takes place that results in an entity having no realistic alternative to settling the legal or constructive

Question 7

Entry for provision for damage in court case

Answer 7

P/l dr

Provision cr

Question 8

Reimbursement from insurance to cover some expenditure required to settle the obligation

Answer 8

Recognized only if receipt is virtually certain

Reimbursement should be treated as a separate asset

Receivables dr
P/l cr