Set 4 FR Chapter 12 Contigencies

Question 1

IFRS contingent liability vs provision

Answer 1

Contingent liability - items that do not meet the definition for recognition. Provision - liabilities that meet the criteria but are of an uncertain timing or amount

Question 2

When is a contingent liability considered a provision?

Answer 2

• the entity has a present obligation as a result of a previous event
• it is considered probable the entity will have an outflow of economic resources
• the entity can make a reliable estimate of this amount

Question 3

three likelihoods under IFRS - how are they defined under IFRS.

Answer 3

remote - unlikely, not defined
possible - not remote nor probable, not defined
probable - more than 50% likely to happen

Question 4

measurement?

Answer 4

if known, most likely outcome

if a range is likely, take the average

Question 5

Contingent liability IS likely (over 50%) and IS measureable - treatment

Answer 5

Record provision

Question 6

Contingent liability IS likely (over 50%) and IS NOT measurable - treatment

Answer 6

Disclose

Question 7

Contingent liability IS NOT likely (under 50%) and IS possible - treatment

Answer 7

Disclose

Question 8

Contingent liability IS NOT likely (under 50%) and IS NOT possible

Answer 8

Nothing - likelihood is remote

Question 9

disclosure

Answer 9

 brief description of the nature, timing, and uncertainty of payments
 amount of any expected reimbursements
 the carrying amount at the beginning and end of the period
 increases, decreases, reversals of unused amounts, and increases due to passage of time during the year

Question 10

Define contingent asset

Answer 10

A potential asset resulting from a past event for which a future independent event will determine if an inflow of economic benefits is to occur.

Question 11

Treatment of contingent assets

Answer 11

Have to be virtually certain to recognize provision. If not, if it is measureable and/or probable then you can disclose.

Question 12

ASPE vs IFRS

Answer 12

ASPE - no use of term provision, uses contingent loss instead
ASPE uses the term likely instead of probable - higher bar
when there is a range and no best estimate, the minimum amount is used and the other amounts are disclosed