Topic 11- Provisions and contingencies + events after the reporting date

Question 1

A provision shall be recognised when:

3 criterias

Answer 1

▪ an entity has a present obligation, legal or constructive, as a result of a past event;
▪ it is probable that an outflow of resources will be required to settle the obligation;
▪ a reliable estimate can be made of the amount of the obligation

Question 2

what are the two types of obligation

Answer 2

Legal and constructive

Question 3

what is legal obligation

Answer 3

Legal obligation arises due to a change in regulation/law

It derives from a contract or a legislation

Question 4

what is constructive obligation

Answer 4

An obligation that derives from an entity’s actions where:

▪ by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and

▪ as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

Question 5

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Answer 5

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Question 6

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Answer 6

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Question 7

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Answer 7

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Question 8

what is a contingent liability

Answer 8

A contingent liability is:

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

▪ a present obligation that arises from past events but is not recognised because;

i) it is not probable that an outflow of resources will be required to settle the obligation
ii) the amount of the obligation cannot be measures with sufficient reliability

Question 9

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Answer 9

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Question 10

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Answer 10

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Question 11

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Answer 11

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Question 12

what is a contingent asset

Answer 12

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the
entity.

A contingent asset must not be recognised as an asset in the financial statements unless it is virtually certain.

Instead are disclosed in the notes to the accounts if it PROBABLY ONLY

Question 13

what things are disclosed on the contingent liability and assets

Answer 13

✓ The nature of the contingency.
✓ The uncertainties expected to affect the ultimate outcome.
✓ An estimate of the potential financial effect.

Question 14

match the following for contingent asset, contingent liability and provision
Possible
Probable

Answer 14

probable= Provision 
Possible = Contingent Liability 
Probable = Contingent asset

Question 15

if a dividend is proposed before but declared after the reporting date,

are they a liability or not at the reporting date

Answer 15

dividendS proposed before but declared after the reporting date, may not be included as liabilities at the reporting date

the liability arises at the declaration date so they are non-adjusting events after the reporting date and must be disclosed by note as required by IAS 1

Question 16

IAS10 Events After the Reporting Period covers WHAT period

Answer 16

IAS10 Events After the Reporting Period covers the period from the reporting date up to the date the financial statements are authorised for issue