When do we recognise a provision?
1. We can reliably measure the outflow of economic benefits.
2. It is probable that there will be an outflow of economic benefits.
3. There is a present obligation as a result of a past event.
FA syllabus
Provisions Summary 10 / 12
When do we recognise a provision?
1. We can reliably measure the outflow of economic benefits.
2. It is probable that there will be an outflow of economic benefits.
3. There is a present obligation as a result of a past event.
Special scenarios you need to know
A provision is NOT recognized for future operating losses.
For onerous contracts, provide for the unavoidable cost, which is the lower of:
1. net cost of fulfilling
2. penalties from failure to fulfill
Special scenarios you need to know
A provision is NOT recognized for future operating losses.
For onerous contracts, provide for the unavoidable cost, which is the lower of:
1. net cost of fulfilling
2. penalties from failure to fulfill
Restructuring provision
Can only recognise these if there is a constructive obligation. A constructive obligation arises when:
1. There is a detailed formal plan.
2. A valid expectation has been raised in those affected either by implementing the plan or communicating to those affected.
Restructuring provision
Can only recognise these if there is a constructive obligation. A constructive obligation arises when:
1. There is a detailed formal plan.
2. A valid expectation has been raised in those affected either by implementing the plan or communicating to those affected.
CONTINGENT LIABILITY
A possible obligation OR a present obligation but isn't recognised because it is not possible to reliably measure or it is is not probable there will be an outflow of resources.
Just disclose these in the notes
CONTINGENT LIABILITY
A possible obligation OR a present obligation but isn't recognised because it is not possible to reliably measure or it is is not probable there will be an outflow of resources.
Just disclose these in the notes
CONTINGENT ASSET
If these are virtually certain then recognise in the accounts.
If only probable then disclose in the notes to the FS.
CONTINGENT ASSET
If these are virtually certain then recognise in the accounts.
If only probable then disclose in the notes to the FS.
OBLIGATING EVENT
A legal or constructive obligation which results in an entity having no realistic alternative other than settling the obligation
OBLIGATING EVENT
A legal or constructive obligation which results in an entity having no realistic alternative other than settling the obligation