Alternative formats of the SoCI, Provisions etc.. Flashcards
(28 cards)
What two formats does IAS 1 allow a company to analyse exoenses?
- Format 1: Show expenses “by function” (e.g. cost of sales, distribution costs, admin expenses)
- Format 2: Show expenses “by nature” (e.g. materials, employee benefits and expenses, depreciation)
What four categories to we classify operating expenses into “by function”?
- Cost of sales
- Distribution and selling costs
- Admin expenses
- Other operating income or expense
How do we calculate Change in Inventory?
- Change in raw material
+ - Change in WIP
+ - Change in finished goods
What is the purpose of IAS 37?
Tries to ensure appropriate recognition criteria and measurement bases are applied to provisions, contingent liablities and contingent assets.
What is a provision?
A liability of uncertain timing or amount
When should a provision be recognised?
- An entity has a present obligation as a result of a past event
- It is probable that a transfer of economic benefits will be required to settle the obligation
- A reliable estimate can be made of the amount of the obligation
How should an entity recognise provisions?
At the best estimate of the expenditure required to settle them
How would be measure a provision for a single obligation or one- off events (e.g. restructuring, legal settlements etc.)
Should be measured at the individual most likely outcome
How would we measure a provision for large populations of events (e.g, warranties, customer refunds)
Should be measured at a probability-weighted expected value
What do we do when the effect of time value of money is material to provisions?
Provisions should be discounted to PV
Do we measure provisions for future operating losses?
No - Provisions shall not be recognised for future operating losses
How do we measure provisions for Onerous Contracts?
If a contract is onerous, the present obligation under the contract shall be recognized and measured as a provision
What is restructuring?
A programme that is planned and controlled by management and materially changed either:
- The scope of business
- The manner in which that business is conducted
A provision for restructuring should be recognized when:
- There is a detailed plan for the restructuring
AND - There is a valid expectation that such a plan will be implemented
What is a contingent liability?
- A possible obligation (less than 50% chance), which is dependent on the outcome of future events
OR - A present obligation, where payment is not probable, or where it cannot be measured reliably
Should contingent liabilities be recognised?
NO
- Disclose in notes unless the possbility of loss is less than 5% chance
- If the payment is virtually certain, recognise it as a liability
What is a ‘Big Bath’ provision?
Effect of the provision is to adjust the reported profit.
What is a contingent asset?
- A probable asset, arising from past events, where an inflow of economic benefits depends on the outcome of an uncertain future event
Should contingent assets be recognised?
NO
- Disclose if an inflow of economic benefits is probable
- Not disclosure where the chance of occurence is anything less than probable (50%)
- If the flow of future economic benefits is virtually certain, then an asset is recognised
How would you disclose a provision?
- The expected timing of any resulting outflows
- Indication of uncertainty
- Amount of unexpected reimbursements
How would you disclose a contingent liability?
- Estimation of its financial effect
- Indication of the uncertainties relating to the amount or timing of any outflow
- Possibility of any reimbursement
What does IAS 10 relate to?
Events after the reporting period
What are events after the reporting period?
Those events that occur between the end of an entity’s reporting period and the date that the financial statements are authorised for issue
Two types:
- Adjusting
- Non-adjusting
What are adjusting events?
Events after the reporting period which provide further evidence of conditions that existed at the end of the reporting period.
