This document discusses accounting for provisions, contingent liabilities, and contingent assets under PAS 37. It defines provisions as liabilities of uncertain timing or amount that differ from other liabilities due to uncertainty about expenditure required. A provision is recognized when there is a present obligation from past events, an outflow is probable, and the amount can be reliably estimated. Provisions are measured at the present value of expected expenditures required to settle the obligation. Contingent liabilities and assets are not recognized until the related event occurs or does not occur respectively.
This document discusses accounting for provisions, contingent liabilities, and contingent assets under PAS 37. It defines provisions as liabilities of uncertain timing or amount that differ from other liabilities due to uncertainty about expenditure required. A provision is recognized when there is a present obligation from past events, an outflow is probable, and the amount can be reliably estimated. Provisions are measured at the present value of expected expenditures required to settle the obligation. Contingent liabilities and assets are not recognized until the related event occurs or does not occur respectively.
This document discusses accounting for provisions, contingent liabilities, and contingent assets under PAS 37. It defines provisions as liabilities of uncertain timing or amount that differ from other liabilities due to uncertainty about expenditure required. A provision is recognized when there is a present obligation from past events, an outflow is probable, and the amount can be reliably estimated. Provisions are measured at the present value of expected expenditures required to settle the obligation. Contingent liabilities and assets are not recognized until the related event occurs or does not occur respectively.
This document discusses accounting for provisions, contingent liabilities, and contingent assets under PAS 37. It defines provisions as liabilities of uncertain timing or amount that differ from other liabilities due to uncertainty about expenditure required. A provision is recognized when there is a present obligation from past events, an outflow is probable, and the amount can be reliably estimated. Provisions are measured at the present value of expected expenditures required to settle the obligation. Contingent liabilities and assets are not recognized until the related event occurs or does not occur respectively.
• Differentiate the accounting requirements for a provision, a contingent liability and a contingent asset. • Describe the measurement of a provision.
Conceptual Framework & Acctg.
2 Standards (by: Zeus Vernon B. Millan) Provisions • A provision is a liability of uncertain timing or amount. • Provisions differ from other liabilities because of the uncertainty about the timing or amount of expenditure required in settlement. Unlike for other liabilities, provisions must be estimated. Although, some other liabilities are also estimated, their uncertainty is generally much less than for provisions. • Other liabilities, such as accruals, are reported as part of “Trade and other payables” whereas provisions are reported separately.
Conceptual Framework & Acctg.
3 Standards (by: Zeus Vernon B. Millan) Provision vs. Contingent liability
Conceptual Framework & Acctg.
4 Standards (by: Zeus Vernon B. Millan) Recognition of provisions
• A provision is recognized when all of the following conditions are
met: 1. The entity has a present obligation (legal or constructive) as a result of a past event; 2. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and 3. A reliable estimate can be made of the amount of the obligation.
Conceptual Framework & Acctg.
5 Standards (by: Zeus Vernon B. Millan) Conceptual Framework & Acctg. 6 Standards (by: Zeus Vernon B. Millan) Measurement
Conceptual Framework & Acctg.
7 Standards (by: Zeus Vernon B. Millan) Present value
• Where the effect of the time value of money is material,
the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation.
Conceptual Framework & Acctg.
8 Standards (by: Zeus Vernon B. Millan) Expected disposal of assets
• Gains from the expected disposal of assets shall not be
taken into account in measuring a provision. Gains shall be recognized only when the assets are actually disposed of.
Conceptual Framework & Acctg.
9 Standards (by: Zeus Vernon B. Millan) Reimbursements
• Where some or all of the expenditure required in settling a
provision is expected to be reimbursed by another party, the reimbursement is recognized only when it is virtually certain that reimbursement will be received if the entity settles the obligation. • The reimbursement shall be treated as a separate asset. • In the statement of profit or loss and other comprehensive income, the expense relating to a provision may be presented net of the amount recognized for a reimbursement. Conceptual Framework & Acctg. 10 Standards (by: Zeus Vernon B. Millan) Changes in provisions
• Provisions shall be reviewed at the end of each reporting
period and adjusted to reflect the current best estimate.
• If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, the provision shall be reversed.
Conceptual Framework & Acctg.
11 Standards (by: Zeus Vernon B. Millan) Product warranties and guarantees
• If a customer has the option to purchase a warranty
separately (for example, because the warranty is priced or negotiated separately), the warranty is accounted for in accordance with PFRS 15 Revenue from Contracts with Customers.
• If a customer does not have the option to purchase a warranty
separately, the warranty is accounted for in accordance with PAS 37 Provisions, Contingent Liabilities and Contingent Assets unless the promised warranty provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. Conceptual Framework & Acctg. 12 Standards (by: Zeus Vernon B. Millan) Liability for premiums
• A customer option to acquire additional goods or services
for free or at a discount is accounted for under PFRS 15 if the option provides the customer a material right that the customer would not receive without entering into that contract. • A customer option that does not provide the customer with a material right is not accounted for under PFRS 15; and therefore, accounted for in accordance with PAS 37. Conceptual Framework & Acctg. 13 Standards (by: Zeus Vernon B. Millan) Guarantee for indebtedness of others
• A provision for the guarantee for indebtedness of others
is recognized when it becomes probable that the entity will be held liable for the guarantee, such as when the original debtor defaults on the loan.
Conceptual Framework & Acctg.
14 Standards (by: Zeus Vernon B. Millan) Contingent assets
Conceptual Framework & Acctg.
15 Standards (by: Zeus Vernon B. Millan) APPLICATION OF CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 16
OPEN FORUM QUESTIONS???? REACTIONS!!!!!
Conceptual Framework & Acctg.
17 Standards (by: Zeus Vernon B. Millan) END Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 18