Provisions, Contingent Liabilities and Assets Flashcards

1
Q

How does one account for an onerous contract?

A
  • A provision needs to be raised
  • in the year that the contract occurred so that it is expensed in that year
  • the value of the provision needs to be the net loss you will incur, which is the costs less the total revenue
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2
Q

What are the important considerations of Provisions, contingent liabilities and assets?

A
  • definitions
  • recognition
  • measurement
  • reimbursements
  • future operating losses
  • onerous contracts
  • restructuring
  • disclosure
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3
Q

What standard deals with Provisions, Contingent Liabilities and assets

A

IAS 37

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4
Q

What are the disclosure requirements?

A

I don’t know, look it up Karen

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5
Q

What is the requirements to disclose a contingent liability type 2 and what must you disclose?

A
  • you need to met the definition
  • The entity has a possible obligation that has yet to be confirmed
  • By the happening of an uncertain future event
  • That could lead to an outflow of economic resources/
  • not remote chance that it will
  • you will need to disclose the following
  • A financial estimate
  • That considers the time value of money if outflow could be in more than 12 months from now
  • What the uncertain future event is
  • it’s likehood to occur
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6
Q

What are the relevant definitions one needs to know?

A
  • provision
  • A liability of uncertain timing or amount
  • And IAS laibility is a
    ~ present obligation of the entity arising from
    ~ past events,
    ~ the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits
  • contingent liability type 1
  • A present obligation that arises from
  • past events but is not recognised because
  • It is not probable that an outflow of resources embodying ecnomics benefits will be required to settle the obligations OR
  • the amount of obligation cannot be measured with sufficient reliability
  • contingent liability type 2
  • a POSSIBLE obligation
  • That arises from past events
  • Whose existence can only be confirmed by the occurrence or non occurance of one of more uncertain future events
  • Which are not wholly within the control of the entity
  • contingent asset
    *a possible asset
  • that arises from past events and
  • whose existence will be confirmed only by the occurance or non occurance of one or more uncertain future events
  • not wholly within the control of the entity
  • onerous contract
  • A contract in which the unavoidable costs of meeting the obligations, exceed the economic benefits expected to be received from it
  • a restructuring provision
  • A programme that is planned and controlled by management
  • That materially changes either
    ~ the scope of business OR
    ~ the manner in which that business is conducted
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7
Q

How does one deal with answering questions related to this section?

A
  • The question will normally be asking how would you account for the following information. You will need to identify what parts of this IAS 37 is relevant and then apply it to give the answer
  • The format of the answer will generally look as follows
  • issue
  • definition
  • recognition criteria (if any, and some forms of provisions have extra criteria)
  • measurement
  • disclosure
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8
Q

What is the recognition criteria for each type in IAS 37?

A
  • Provision
    *
  • contingent liability type 1
    *
  • contingent liability type 2
    *
  • contingent Asset
  • restructuring provision
    *
  • onerous contract provision
    *
  • I think there is one more
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