Provisions and Contingent liabilities Flashcards

1
Q

Provision

A

liability of uncertain timing or amount

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2
Q

liability

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

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2
Q

obligation event

A

event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation

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3
Q

provision shall be recognized when

A
  • entity has a present obligation as a result of a past event
  • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
  • a reliable estimate can be made of the amount of the obligation
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4
Q

present obligation existence

A

exist if more likely than not

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5
Q

single obligations probability

A

outflow resources is more likely than not to occur (>50%)

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6
Q

group of similar obligations probability

A

probability is determined by considering the class of obligations as a whole (fulfilled even if ourflow probability for any one item is small)

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7
Q

Measurement of provisions

A

measured at the best estimate of the expenditure required to settle the present obligation. Where the effect of time value of money is material, amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation

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8
Q

Single obligation measurement

A

individual most likely outcome may be best estimate, however also consider other possible outcomes

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9
Q

Reimbursements

A
  • shall be treated as a separate asset
  • only recognized if ‘virtually certain’
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10
Q

changes in provisions

A
  • shall be reviewed at the end of each reporting period and adjusted to reflect current best estimate
  • no longer probable outflow of resources embody economic benefits will be required to settle obligation, provision shall be reversed
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11
Q

restructuring provisions criteria

A
  • a present obligation must exist
  • costs must be directly and necessarily caused by the restructuring and not associated with the ongoing activities of the entity
  • if restructuring involves the sale of an operation, a binding sale agreement is needed before a provision can be recognized
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12
Q

contingent liability (meaning 1)

A

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

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13
Q

Contingent liability (meaning 2)

A

a present obligation that arises from past events but is not recognized because
- it is not probable than an outflow of resources embodying economic benefits will be required to settle the obligation
- the amount of the obligation cannot be measured with sufficient reliability

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14
Q

Present obligation arises as a result of past events => NO

A

then neither a provision nor a contingent liability exists

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15
Q

Present obligation arises as a result of past events => UNCLEAR

A

then contingent liability if the possibility of outflow is higher than remote