This is an existing liability of uncertain timing or amount.
Provision
TRUE OR FALSE:
Provisions may use estimates in measurement.
True
How are provisions measured?
At the** best estimate x chances of loss x 1.RAF x PV Factor.**
RAF = Risk Adjustment Factor
If no risk adj factor, the best estimate is enough.
What are the two approaches of measuring provisions in finding the best estimate?
- Midpoint of the range (Highest + Lowest)/2
- Expected Value Approach (Multiply all amounts to the given probability and adding it all)
What would be considered as probable in order for a provision to be measured?
More than 50%
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT ASSET:
Probable
Disclose
(in notes)
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT ASSET:
Possible
Ignore
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT ASSET:
Reasonably Certain
Recognize
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT ASSET:
Remote
Ignore
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT LIABILITY:
Reasonably Certain
Recognize
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT LIABILITY:
Probable
Recognize
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT LIABILITY:
Possible
Disclose
(in notes)
RECOGNIZE, DISCLOSE, IGNORE?
CONTINGENT LIABILITY:
Remote
Ignore
Give the percentage range for each:
1. Remote
2. Possible
3. Probable
4. Reasonably Certain
REMOTE: 0-49%
POSSIBLE: 50%
PROBABLE: 50% - 94%
REASONABLY CERTAIN: 95%-100%
What does it mean when a long term interest bearing note has a realistic rate?
NR = ER
Nominal Rate = Effective Rate
What does it mean when a long term interest bearing note does not bear a realistic rate?
NR ≠ ER
Nominal Rate is not equal to Effective Rate.
What is the initial measurement of a long-term interest bearing note that bears a realistic rate?
Face Value
What is the initial measurement of a long-term interest bearing note that DOES NOT bear a realistic rate?
- CPE
- Present Value
What is the subsequent measurement of a long-term interest bearing note that bears a realistic rate?
Face Value
What is the subsequent measurement of a long-term interest bearing note that does not bear a realistic rate?
Amortized Cost
How do you find the interest PAID from a long term interest bearing note that bears a realistic rate?
Face Value x Nominal Rate
How do you find the interest EXPENSE from a long term interest bearing note that does not bear a realistic rate?
CA, beg x Effective Rate
How do you find the interest PAID from a long term interest bearing note that does not bear a realistic rate?
Face Value x Nominal Rate
How do you find the interest EXPENSE from a long term interest bearing note that bears a realistic rate?
Face Value x Nominal Rate
