Provisions

Question 1

What is the criteria for a provision?

Answer 1

• Present obligation
• Past event
• Probable outflow (more than 50% likely)
• Reliable estimate

Question 2

What is the accounting standard for Provisions, Contingent Liabilities and Contingent Assets?

Answer 2

IAS 37

Question 3

How do you recognise a provision that relates to dismantling costs?

Answer 3

• Discount the value
• Dr Asset, Cr Provision
• Unwind at the year end by Dr P/L, Cr Provision

Question 4

How is a contingent liability treated in the financial statements and on what occasion can this change?

Answer 4

Disclose only in the notes with:

• Amount (likely)
• Nature
• Future event you are waiting on

Question 5

What is the definition of provisions?

Answer 5

Liability of uncertain timing or amount

Question 6

What is the accounting for a provision?

Answer 6

Dr P/L
Cr Provision

With the best estimate at year end and adjust if needed

Question 7

If probable outflow is remote, how should you go ahead?

Answer 7

Be prudent and disclose

Question 8

When do you put the contingent liability on a balance sheet?

Answer 8

When another company buys a company that has a contingent liability, it goes on the groups balance sheet

Question 9

What are examples of contingent assets?

Answer 9

• Winning a legal case

- Insurance pay outs