FR - Contingencies

Question 1

Explain what contingent transaction, provision, and contingent liability is

Answer 1

Contingent transaction - a transaction that is dependent on another event to exist. Reliant on another independent event to materialize

Provision - A liability of uncertain timing or amount
Contingent liability - A liability that does not meet the recognition criteria

Question 2

What are the 3 requirements for recognizing a provision

Answer 2

1. The entity has a present obligation arising because of a past event
2. Considered probable that the entity will have an outflow of economic condition
3. Entity can make a reliable estimate of the outflow of economic resource

Question 3

What are the three ranges of probability

Answer 3

1. Remote - THere is a low probability of the event taking place. Based on professional judgement
2. Possible - Probability of the event taking place is not remote, nor probable. Professional judgment
3. Probable - More likely to occur or not. Greater than 50%

Question 4

How is measurement determined once obligation is met

Answer 4

• Reliable estimate must be able to be made, standard also say that the use of estimates is an essential part of the preparation for F/S
• Determine the range of possible outcomes and can therefore estimate the obligation that is sufficiently

Two method - weighted average. Consider of given when determining the estimate to whether the expected value is a better estimate in some consideration

Question 5

What 3 disclosure to be used for contingent liability

Answer 5

1. Breif descption of the nature, timing and uncertainty of payment
2. Amount of any expected reimbursement
3. Carrying amount at the beginning and end of the period
4. Increase, decrease reversal of unused amount and increase due to passage of time during the year

If non recognition - Do not record but disclose in the notes to the F/S
To not record or disclose - where the outcome of contingent liability is remote, company is not required to record a provision nor to disclose in notes of F/S

Question 6

What Handbook is used for IFRS and ASPE for contingencies

Answer 6

IAS 37
ASPE 3290

Question 7

Explain what contingent asset are

Answer 7

• Possible asset that rise from past event and whose existence will be confirmed only by occurrence or non-occurence of one or more uncertain future event not wholly within control of the entity
  IAS 37.31 - Entities are not permitted to recognize contingent asset but are permitted to disclose is realization less than probable

Question 8

What is difference between IFRS and ASPE

Answer 8

• ASPE uses the term likely which is generally considered to be higher bar than the term probable which is used in IFRS

ASPE - Contingent loss, Contingent gain, “Likely”

Contingent loss
1. It is likely that a future event will confirm that an asset has been impaired or a liability incurred at the date of F/S
2. The amount of the loss can be reasonably estimated