CERCADO, Geran Kearn L.

BSA-2 ACC 221 2:15-4:15PM April 5, 2021

Current Liabilities Provisions Contingencies

Recognition A liability is recognized as current liability if it A provision is recognized when A contingent liability is not
is: all of the following conditions recognized because it is a
a. Expected to be settled in the entity’s are met: possible obligation or a present
normal operating cycle. a. The entity has a present obligation but with an improbable
b. Held primarily for trading. obligation (legal or outflow or an outflow that cannot
c. Due to be settled within 12 months constructive) resulting be estimated reliably.
after reporting period, or from a past event.
d. The entity does not have an b. It is probable that an
unconditional right to defer settlement outflow of resources
of the liability for at least 12 months embodying economic
after the reporting period. benefits will be required
to settle the obligation;
and
c. The amount of the
obligation can be reliably
estimated.
Derecognition A current liability is derecognized when, and When a provision is no longer No derecognition because
only when it is extinguished, i.e., when required it must be reversed. contingent liability is not
current liability is discharged, cancelled or IAS 37 strictly prohibits the recognized but shall be
expired. redesignation of a provision to disclosed only.
meet other obligations of the
entity.
Measurement All liabilities are initially measured at present Provisions are measured at the There is no specific measurement
value and subsequently measured at best estimate of the amount because the amounts cannot be
amortized cost. However, current liabilities needed to settle them at the end measured reliably.
are not discounted anymore but measured, of the reporting period.
recorded and reported at face amount. When measuring a provision,
an entity uses:
(a) best estimate
(b) expected value, or
 (c) mid-point
Presentation Liabilities are presented as either (a) current Provisions are presented in the A contingent liability that is
or (b) noncurrent on the face of a diversified statement of financial position probable
statement of financial position. A classified separately from other types of or possible but the amount cannot
statement of financial position is one that liabilities. be estimated means that the
shows current and noncurrent distinctions. amount cannot be recorded in the
company’s accounts or reported
as liability on the statement of
financial position. Instead, the
contingent liability will be
disclosed
in the note
Disclosure Current liability information found in the Reconciliation for each class of Contingent liabilities are disclosed
notes to the financial statements provide provision: only but if the possibility of inflow
additional explanation on the account • opening balance of
balances and any circumstances • additions resources embodying economic
affecting them. Accounting principles • used (amounts charged benefits is remote, no disclosure
can sometimes require this type of against the provision) is
disclosure. • unused amounts necessary
reversed
• unwinding of the
discount, or changes in
discount rate
• closing balance

A prior year reconciliation is not

required.
For each class of provision, a
brief description of nature,
timing, uncertainties,
assumptions, reimbursement, if
any.