Provision - F2

Question 1

What is a provision?

Answer 1

Liability of uncertain timing or amount

Question 2

What is a liability?

Answer 2

Present obligation arising from past events

Question 3

When is a provision recognised?

Answer 3

Entity has a present obligation as a result of a past event
Probable that an outflow of resources embodying economic benefits will be required to settle the obligation
Reliable estimate can be made of the amount

Question 4

What does IAS 37 say that an obligation can be?

Answer 4

Legal - contract, legislation
Constructive - Established pattern of past practice, published policy or statement

Question 5

What is an onerous contract?

Answer 5

A contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it

Question 6

What provision should be made when exiting a contract?

Answer 6

Cost of fulfilling the contract
Any compensation/penalties payable for failing to fulfil the contract

Question 7

When can provisions be made for restructuring costs?

Answer 7

Entity has detailed formal plan
Has raised a valid expectation in those affected that it will carry out the restructuring by: starting to implement it, or announcing it

Question 8

When can provisions be made?

Answer 8

Necessarily entailed by restructuring
Not associated with the ongoing activities of the entity