Provisions & Events after Reporting date

Question 1

What are the 3 tests you have to pass in order to recognise provisions?

Answer 1

1) Obligation
2) Reliable Measure
3) Probable

Question 2

What is the double entry for Provisions?

Answer 2

Dr Expense Cr Provisions

Question 3

What are the two type of obligations in Provisions?

Answer 3

1) Constructive ( Expected)

2) Legal

Question 4

Do we recognise provisions for next year losses?

Answer 4

No, we do not have obligation to stay in the business so therefore provisions should not be recognised.

Question 5

When it is a constructive obligations, what do you expect?

Answer 5

Board decision made and all affected parties to know.

Question 6

Would you adjust the accounts for dividends?

Answer 6

No, it will be a non-adjusting event because it will be proposed/declared in year end.

Question 7

What is a possible liability called?

Answer 7

Contingent Liability

Question 8

When it is a contingent liability, do we adjust the accounts?

Answer 8

No, we only disclose contingent liability

Question 9

When the liability is remote what do we do?

Answer 9

Do Nothing

Question 10

When the liability is probable, what do we do?

Answer 10

Recognise provision Dr Exp Cr Prov

Question 11

When the asset is probable, what do we do?

Answer 11

Disclose

Question 12

When the asset is virtually certain, what do we do?

Answer 12

Create an asset

Question 13

When do we adjust the year end-figure after the date?

Answer 13

If it gives more information about the condition of Statement of Financial Position date.

Question 14

If there are damages after the SFP date, do we go back and adjust our year end figures?

Answer 14

No, because it is not telling us about the condition of Y/E, only telling us the damage.