Reviewer PAS 37 Provisions PDF

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Summary

PAS 37 Provisions, Contingent Liabilities and Contingent AssetsPROVISIONSA provision is a liability of uncertain timing or amount.A PROVISION IS AN EVENT WHICH IS PROBABLE AND MEASURABLE.Provisions differ from other liabilities because of the uncertainty about the timing or amount of expenditure req...

Description

PAS 37 Provisions, Contingent Liabilities and Contingent Assets PROVISIONS A provision is a liability of uncertain timing or amount. A PROVISION IS AN EVENT WHICH IS PROBABLE AND MEASURABLE. 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. Provision vs. Contingent liability

Recognition of provisions • A provision is recognized when all of the following conditions are met: • The entity has a present obligation (legal or constructive) as a result of a past event; • It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • A reliable estimate can be made of the amount of the obligation.

MEASUREMENT

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. 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.

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. 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. USE OF PROVISIONS ONEROUS CONTRACT

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A CONTRACT IN WHICH THE UNAVOIDABLE COST OF MEETING THE OBLIGATIONS UNDER THE CONTRACT EXCEED THE ECONOMIC BENEFITS TO BE RECEIVED UNDER IT. If an entity has an onerous contract, the present obligation under the contract shall be recognized and measured as a provision

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.

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. 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. COURT CASE 

AN ENTITY MAY RECEIVE NOTIFICATION OF LEGAL ACTION AGAINST THEM. IF THE ATTORNEYS DETERMINED THAT IT IS PROBABLE THE ENTITY WILL LOSE THE SUIT AND THE LOSS CAN BE ESTIMATED RELIABLY. THE ESTIMATED LOSS IS REPORTED AS A LOSS IN THE INCOME STATEMENT AND A PROVISION IN THE STATEMENT OF FINANCIAL POSITION.

CONTINGENT ASSETS

DISCLOSED WHERE AN INFLOW OF ECONOMIC BENEFITS IS PROBABLE....