Week 5: Provisions

Question 1

How would a provision be recognised?

Answer 1

• The entity has a present obligation as a result of a past event
• An outflow of resources with economic benefit would be required to settle the obligation
• A reliable estimate can be made on the amount of the obligation

Question 2

How would IAS37 define a contingent liability as?

Answer 2

• A possible obligation that arises from past events and whose existence is confirmed only by uncertain future events
• A present obligation that arises from past events but is not recognised because it has no economic outflow no certainty of amount of obligation

Question 3

What is a contingent asset?

Answer 3

A possible asset that arises from past events and the existence of it is confirmed by more events

Question 4

What are adjusting and non adjusting events?

Answer 4

Adjusting events: Conditions that already happened before year end but didn’t know
Non-adjusting events: New event after year end

Question 5

With an adjusting event, do you change the accounts or disclose by way of note? How about for a non-adjusting event?

Answer 5

Adjusting - adjust the accounts
Non-adjusting - disclose by way of note