Professional Documents
Culture Documents
L03-Ias 37
L03-Ias 37
L03-Ias 37
Provisions,
Contingent Liabilities and Contingent
Assets
Definitions
A provision
is a liability
of uncertain timing or amount.
A liability
is a present obligation of the entity
arising from past events,
the settlement of which
is expected to result in an outflow from the entity
of resources embodying economic benefits
Definitions
What about:
Provision for depreciation, doubtful debts,
impairments.???
An entity has,
as a result of a past event,
a present obligation (legal or constructive).
Recognition – Condition 1
Past Event
The past event is known as obligating event
An obligating event is an event that creates a
legal or constructive obligation that results in
an entity having no realistic alternative to
settling that obligation
When no realistic alternative exists:
When settlement can be enforced by law; or
When the event creates valid expectations.
Recognition – Condition 1
Present obligation could be of two types: legal or constructive
A legal obligation is an obligation that derives from
A contract (through its explicit or implicit terms)
Legislation; or
Examples:
Reliable estimate
Best estimate
Consider
Risks and uncertainties
Present Value
Future Events
Ignore
Expected disposal of assets
Reimbursements
Measurement – General Rules
Best estimate
Risks and uncertainties
Present Value
Future Events
Expected disposal of assets
Reimbursements
Measurement – Best Estimate
DF PV
Year 1 40,000 x 0.909
Year 2 50,000 0.826
Measurement –
Expected disposal of assets
Gains from expected disposal of assets shall
not be taken into account in measuring a
provision
Measurement - Reimbursements
Examples
The sale or termination of a line of business
Marketing
Contingent Liabilities
Definition
A contingent liability is
A possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events
not wholly within the control of the entity;
or
A present obligation that arises from past events but is not
recognized because:
It is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation;
or
The amount of obligation cannot be measured with sufficient
reliability
Provisions v Contingent Liabilities
Contingent Assets
Definition