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IAS 37 Provisions

The document discusses provisions, contingent liabilities, and assets under IAS 37. It defines provisions and outlines when they should be recognized, including when there is a present obligation from past events, a reliable estimate can be made, and an outflow of resources is probable. It also discusses accounting entries, reviews of provisions, and specific types of provisions like restructuring, onerous contracts, and decommissioning.

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Musawer Saba
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12 views5 pages

IAS 37 Provisions

The document discusses provisions, contingent liabilities, and assets under IAS 37. It defines provisions and outlines when they should be recognized, including when there is a present obligation from past events, a reliable estimate can be made, and an outflow of resources is probable. It also discusses accounting entries, reviews of provisions, and specific types of provisions like restructuring, onerous contracts, and decommissioning.

Uploaded by

Musawer Saba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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IAS 37 - PROVISIONS , CONTINGENT

LIABILITIES AND ASSETS


Provision - it is a liability of uncertain timing and amount.

Note : IAS 37 was established to strictly remove profit smoothing

Recognition

Three criteria are required to be met to record provision


1) There needs to be a present obligation from past events, the obligation can be either legal or constructive
2) There needs to be reliable estimate
3) There needs to be a probable outflow of resources

Double entry

Dr expense xx
Cr provision xx

Note
• Provision should be reviewed , if the criteria no longer met , provision cancelled and shown as income in SOPL
• No provision for future operating loss
• Overhaul cost , replacement cost – no provision needed
• Provision occurring after one year is recorded at p.v
• If provision is shown as p.v , finance cost is shown in SOPL
Legal cost and claims

Legal claim – provision is only created if there is a chance of loss is high


Legal cost - always create provision

Decomisioning cost

-Obligation to remove the assets after the end of their useful life and restore the sites
- Always record provision at p.v

Note – capitalise dismantling cost with the asset

Warranties - provision is created using expected value approach

Restructuring provision

• Changes in scope of business


• Manner in which a business is conducted is changed eg: branch closing in the next year

Criteria
Detailed plan should be there and it should be communicated to all
Restructuring cost should only include the direct cost of restructuring
Eg : redundancy cost , closure cost

Environment provision

Due to our activities , pollution / damage to environment


Already committed damage – provision is created , there should be legal or constructive obligation

Onerous contracts

Loss making contracts


Cost > benefits , onerous contract
Provision is created , lower of its cost of fulfilling the contract
And cost of terminating it and suffering any penalities.

Contingent liability

A possible obligation that arises from past events 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.

Contingent liability is disclosed


Contingent asset

Asset cannot be overstated , prudence concept

Virtually certain – asset , SOFP


Probable - contingent asset , disclose
Possible – do nothing
Remote – do nothing

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