Provisions, Contingent Liabilities And Contingent Assets Flashcards
What standard do the rules to deal with provisions, contingent liabilities and contingent assets fall under?
IAS 37
What is a provision?
A liability of uncertain timing or amount.
What is an obligating event?
Past event leading to obligation.
What is a legal obligation?
An obligation that arises from a law or a legal contract.
What is a constructive obligation?
Obligation as a result from past actions raising a valid expectation the entity will make payment.
What is the definition of a contingent liability?
A present obligation that is not recognised as it is not probable that an outflow of economic resources will take place or the amount of the obligation cannot be measures accurately.
What is a contingent asset?
A possible asset that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events not wholly within the control of the entity.
What is an onerous contract?
A contract in which the entity expects to incur unavoidable costs in order to meet the obligations of the contract.
What is a liability?
A present obligation arising from past events and the settlement of which will result in an outflow of economic benefits.
When shall a provision be recognised?
When an entity has a present obligation (legal or constructive) as a result of a past event; and it is probable that there will be an outflow of economic benefits and; a reliable estimate can be made of the amount.
Are contingent liabilities recognised?
No, however, they must be disclosed unless the probability of an outflow is remote.
Are contingent assets recognised?
No, however, they must be disclosed if inflow is probable. If realisation is virtually certain, then it is a normal asset.
What is the best estimate?
The best estimate of expenditure required to settle the present obligation. The amount rationally payable.
Calculate as a weighting of possible outcomes allowed. %chance x amount.
What is a provision?
A liability of uncertain timing or amount.
What is an obligating event?
Past event leading to obligation.
