4 - Provision

Question 1

Standard where provisions are based on

Answer 1

PAS 37 - Provisions, Contingent Liabilities and Assets

Question 2

Liability of uncertain timing or amount

Answer 2

Provision

Question 3

Provisions differ from other liabilities because of

Answer 3

Uncertainty in timing and amount

Question 4

Provisions must necessarily be

Answer 4

Estimated

Question 5

Provisions are presented in?

Answer 5

SOFP separately from other types of liabilities

Question 6

Provision is recognized when these conditions are met:

Answer 6

1. entity has present obligation from past event
2. probable that outflow of resources will be required to settle the obligation
3. amount of obligation can be reliably estimated

Question 7

What happens if there is a condition that is not met?

Answer 7

No provision is recognized

Question 8

Past event that creates a present obligation

Answer 8

Obligating event

Question 9

Entity doesn’t have any choice but to settle the obligation

Answer 9

Obligating event

Question 10

Cases where it is an obligating event:

Answer 10

1. legal obligation
2. constructive obligation

Question 11

Obligation is legally enforceable

Answer 11

Legal obligation

Question 12

Entity’s actions created valid expectations from others

Answer 12

Constructive obligation

Question 13

The only liabilities (provision) recognized in entity’s SOFP are those that exist

Answer 13

at the end of the reporting period.

Question 14

Whom the obligation is owed

Answer 14

Obligee

Question 15

Obligation always involve another party but

Answer 15

it is not necessary that identity of obligee is known

Question 16

Obligee may be

Answer 16

the public at large

Question 17

“more likely than not”

Answer 17

Probable

Question 18

If there is a 50:50 equal chances of occurrence and nonoccurrence it is

Answer 18

not considered as a provision because chance is ‘possible’ not ‘probable’

Question 19

If no reliable estimate is made

Answer 19

no provision is recognized

Question 20

In the general sense, all provisions are

Answer 20

contingent

Question 21

But, according to PAS 37, contingent refers to

Answer 21

liabilities & assets not recognized because they do not meet all of the recognition criteria

Question 22

Provision is

Answer 22

liability of uncertain timing that meets all these conditions:
> present obligation
> probable outflow
> reliably estimated

Question 23

Contingent liability is

Answer 23

possible obligation whose existence will be confirmed by occurrence or nonoccurrence of future events but:
> present obligation
> no probable outflow
> cannot be reliably estimated

Question 24

Contingent liabilities are

Answer 24

disclosed only

Question 25

Possible asset that arises from past events whose existence will be confirmed only by occurrence or nonoccurrence of uncertain future events not (wholly) controlled by entity

Answer 25

Contingent asset

Question 26

Contingent assets are not recognized. Why?

Answer 26

They do not meet the asset recognition criteria

Question 27

What happens when you recognize contingent assets?

Answer 27

May result to recognition of income that may never be realized

Question 28

Contingent assets are disclosed if

Answer 28

inflow of economic benefits is probable

Question 29

Asset is not a contingent asset if realization of income is

Answer 29

virtually certain; then the asset is appropriately recognized

Question 30

100% chance of occurrence

Answer 30

Virtually certain

Question 31

It has less than 50% chance of occurring

Answer 31

Remote