Scribd
Upload
310 views

Writing Up A Case Study

This document discusses accounting standards for provisions, contingent liabilities, and contingent assets under PAS 37. It defines provisions as liabilities of uncertain timing or amount that are recognized when a past event creates a present obligation, an outflow of resources is probable to settle the obligation, and a reliable estimate can be made. Provisions are measured at the present value of expected expenditures to settle the obligation. Contingent liabilities are not recognized but disclosed if an outflow is not probable. Contingent assets are not recognized but disclosed if an inflow is probable. The document provides detailed guidance on recognition, measurement, changes in estimates, product warranties, and guarantees.

Uploaded by

alliahnah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
310 views

Writing Up A Case Study

This document discusses accounting standards for provisions, contingent liabilities, and contingent assets under PAS 37. It defines provisions as liabilities of uncertain timing or amount that are recognized when a past event creates a present obligation, an outflow of resources is probable to settle the obligation, and a reliable estimate can be made. Provisions are measured at the present value of expected expenditures to settle the obligation. Contingent liabilities are not recognized but disclosed if an outflow is not probable. Contingent assets are not recognized but disclosed if an inflow is probable. The document provides detailed guidance on recognition, measurement, changes in estimates, product warranties, and guarantees.

Uploaded by

alliahnah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

PAS 37 Provisions, Contingent Liabilities and Contingent Assets

Learning Competencies
• State the recognition criteria for provisions.
• Differentiate the accounting requirements for a provision, a contingent liability and a contingent
asset.
• Describe the measurement of a provision.

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.

Provision vs. Contingent liability

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.
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.

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.

Contingent assets

You might also like