Provisions, Contingent Asset, and Contingent Liability

Question 1

measure by estimates

Answer 1

PROVISION

Question 1

a liability of UNCERTAIN TIMING OR AMOUNT

Answer 1

PROVISION

Question 2

presented separately the statement of financial position separately from other types of liabilities

Answer 2

PROVISION

Question 3

RECOGNITION of Provision – when all of the following conditions are met:

Answer 3

(a) there is a present obligation (legal or constructive)
(b) it is probable that there is an outflow of economic resources
(c)The amount of the obligation can be measured reliably.

Question 4

MEASUREMNT OF PROVISIONS

Answer 4

1. Best estimate
2. Expected Value (probability weighted average) -
3. Mid-point

Question 5

1. Best estimate -

Answer 5

General rule (one-off event)

Question 6

2. Expected Value (probability weighted average) -

Answer 6

Involves large population of items Amount of provision = (sum of all possible amount) x their corresponding probability

Question 7

3. Mid-point

Answer 7

• Each possible outcome in a range is as likely as any other Amount of provision = (Highest amount + lowest amount) ÷ 2

Question 8

Recording of provision

Answer 8

Dr. Expense (or loss) account
Cr. Estimated liability account

Question 9

– is an event that creates a legal or constructive
obligation because the entity has no realistic alternative but to settle
the obligation created by the event.

Answer 9

Obligating Event –

Question 10

Probable – means more than 50% likely or substantially more
Possible – means 50% or less likely to occur
Remote – means 10% or less likely to occur or very slightly to
occurrence

Answer 10

Rule of thumb,

Question 11

is the amount that the entity would rationally pay to settle the obligation at the end of reporting period or to transfer it to a third party at that time.

Answer 11

Best estimate

Question 12

The amount recognized as provision should be the __ ___
Of the expenditure required to settle the present obligation at the end of
reporting period.

Answer 12

BEST ESTIMATE.

Question 13

Where there is continuous range of possible outcomes and each point in
that range is as likely as any other the __of the range is used

Answer 13

midpoint

Question 14

Where the provision being measured involves a large population of items,
the obligation is estimated by “__“ all possible outcomes by their
possibilities.

Answer 14

weighting

Question 15

items are taken into consideration in recognizing and
measuring a provision:

Answer 15

1. Risks and Uncertainties.
2. Present value of obligation.
3. Future Events
4. Expected Disposal of assets
5. Reimbursements
6. Change in provision
7. Use of provision
8. Future operating losses
9. Onerous contract

Question 16

Example of Provision

Answer 16

1. Warranties
2. Environmental Contamination
3. Decommissioning or abandonment costs
4. Court Case
5. Gauranteee

Question 17

a “program that is planned and controlled by management and materially changes either the scope of a business of an entity or the manner in which that business is conducted”.

Answer 17

restructuring

Question 18

Events that may qualify as restructuring include:

Answer 18

a. Sale or Termination of a line of business
b. Closure of business location in a region/ or relocation of business
activities from one location to another or relocation of headquarters
from one country to another.
c. Change in management structure,/ such as elimination of a layer of
management or making all functional units autonomous.
d. Fundamental reorganization of an entity / that has a material and
significant impact on its operations.

Question 19

A constructive obligation for restructuring arises when two condition are
presents:

Answer 19

1. The entity has a detailed formal plan
2. The entity has raised valid expectation in the minds of those affected and announcing the main features to those affected by it.

Question 20

excludes the following expenditures
from the restructuring provision:

Answer 20

a. Cost of retraining or relocating continuing staff.
b. Marketing or advertising program to promote the new company image.
c. Investment in new system and distribution network.

Question 21

is a possible obligation that arises from past event
and whose existence will be confirmed only by the occurrence or
nonoccurrence of one or more uncertain future events not wholly within
the control of the entity.

Answer 21

Contingent Liability

Question 22

y is a present obligation that arises from past event but is not recognized because it is not probable that an outflow of resource
embodying economic benefits will be required to settle the obligation or
the amount of the obligation cannot be measured reliably

Answer 22

Contingent Liability

Question 23

is a possible assets that arise from past event and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within
the control of the entity

Answer 23

Contingent asset

Question 24

If a contingent liability is _, no _ is necessary

Answer 24

remote; disclosure

Question 25

A contingent assets is only disclosed when it is _

Answer 25

probable

Question 26

if a contingent assets is only possible or remote, no_ is required

Answer 26

disclosure

Question 27

y is an obligation to dismantle, remove and
restore, an item of property, plant and equipment as required by law or
contract.

Answer 27

Decommissioning Liability

Question 28

A decommissioning liability is also called

Answer 28

asset retirement obligation.

Question 29

Under IFRIC 1, changes in the measurement of an existing decommissioning liability shall be accounted for as follows:

Answer 29

1. A decrease in the liability is deducted from the cost of assets
2. An increase in liability is added to the cost at the assets.