Part_5_Chapter_1_Provisions,_contingent_liabilities_and_contingent_assets_(IAS_37)

– An onerous contract is a contract where the unavoidable costs exceed the expected benefits to be received – Specific assets might be dedicated to a particular contract, in which case, before a separate provision for an onerous contract can be made, it is necessary to recognise any impairment loss for those assets in accordance with the rules set out in IAS 36.
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 6
Definitions and recognition
• A contingent asset is a possible asset that arises from past events and 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 enterprise.
– Future operating losses – Onerous contracts – Restructuring plans
• Related interpretations
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 2
Objective and scope
• Objective
– Ensure appropriate recognition criteria and measurement bases for provisions, contingent liabilities and contingent assets – Ensure that sufficient information is disclosed to enable users to understand nature, timing and amount
– Economic outflow is probable
– More likely than not
– Reliable estimate can be made
– Rebuttable presumption
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 5
Definitions and recognition
• A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. • A provision is a liability with uncertain timing and/or amount.
• Scope
– Accounting for provisions, contingent liabilities and contingent assets, except those that result from
– Executory contracts (unless onerous)
– Contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations
– Scope of business – Manner of conducting business
– Recognize provision when the recognition criteria are met
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 10
Specific applications
• Operating losses
– Do not recognize provisions for future operating losses – Expected operating losses may indicate impairment
• Recognize onerous contract obligations as a provision
– Is a possible obligation as a result of a past event, that may, but probably not, require an outflow of resources – Should be disclosed unless the possibility of outflow is remote
– The amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 8
– Those dealt within another IFRS (IFRS 3, IAS 11, IAS 12, IAS 17, IAS 19, IFRS 4, IAS 18 , IAS 32/39)
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 3
– a valid expectation to carry out this plan
– Announcement of main features – Start of implementation – Binding sale agreement when restructuring involves sale of an operation
– Legal obligation (contract, law,…) – Constructive obligation
– entity has indicated acceptance of responsibility (e.g. by established pattern, published policies, specific statement) and as a result created valid expectation of discharge
Part 5: Chapter 1 - Provisions, contingent liabilities and contingent assets (IAS 37)
Overview
• • • • Objective and scope Definitions and recognition Measurement Specific applications
Defቤተ መጻሕፍቲ ባይዱnitions and recognition
• A contingent liability
– Is a present obligation as a result of a past event:
– That probably requires an outflow of economic benefits, but the obligation cannot be measured
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 9
Specific applications
• Restructuring plan
– Program planned & controlled by management that materially changes either:
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 7
Measurement
• The provision should be measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period
Advanced accounting and international financial statements – Part 5 Ch 1 Pag. 4