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Title: ACCA Part-2 (F7) IAS 37 _ Provision, Contingent Liability and Contingent Asset
Description: A detailed summary of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets from ACCA Part-2 F7 Financial Reporting. This document includes key definitions, recognition criteria, and practical examples for understanding provisions and contingencies in financial reporting.
Description: A detailed summary of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets from ACCA Part-2 F7 Financial Reporting. This document includes key definitions, recognition criteria, and practical examples for understanding provisions and contingencies in financial reporting.
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IAS 37 - Provision, Contingent
Liabilities and Contingent
Assets
Provision (Definition)
A liability of uncertain timing or amount
...
Present obligation (legal or constructive) as a result of past event
2
...
Reliable estimate can be made
Measurement
Realistic estimate
Prudent estimate
IAS 37 - Provision, Contingent Liabilities and Contingent Assets
1
Discounted time value
Specific situations
Future operating loss
✅
Future event ❌ (avoidable cost → not provision)
Past event
Onerous contracts
a contract in which the unavoidable costs > economic
benefit
Recognized and measured as a provision
lower of :
cost of fulfilling the contract
any compensation or penalties
Restructuring
a program that is planned and is controlled by management
and materially changes either :
scope (size) & manner (management)
Example of restructuring
1
...
The closure of business locations / relocation of business activities from
one country, region to another
3
...
Fundamental reorganizations
Constructive obligation to restructure arises only when :
IAS 37 - Provision, Contingent Liabilities and Contingent Assets
2
an entity has a detailed formal plan for restructuring
has raised a valid expectations
Costs to be included in restructuring :
only direct expenditure
fine, penalty, redundancy fees
not associated with the ongoing activities
Costs not to be included in restructuring :
Retraining, relocating
Marketing
Investment in new systems and distribution network
Expected disposal of assets
Gain from the expected disposal of assets should not be taken into account in
a provision
Disclosure
1
...
background and uncertainties
Possible Provision
Exclude from Provision
Onerous Contract
Future Operating Loss
Warranties (expected value
method)
Expected disposal Profit or Loss
Environmental Contamination
After use Payment
Restructuring
IAS 37 - Provision, Contingent Liabilities and Contingent Assets
Major Repair, Overhaul
Self-insurance
Restructuring → retraining,
relocating
3
Contingent Liabilities
A present obligation that arises from past event but is not recognized because :
It is not probable that an outflow of resources embodying economic benefits
will be required to settle the obligation
The amount cannot be measured
Should review regularly and outflow of economic benefits becomes probable,
must be reclassified as provisions
Title: ACCA Part-2 (F7) IAS 37 _ Provision, Contingent Liability and Contingent Asset
Description: A detailed summary of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets from ACCA Part-2 F7 Financial Reporting. This document includes key definitions, recognition criteria, and practical examples for understanding provisions and contingencies in financial reporting.
Description: A detailed summary of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets from ACCA Part-2 F7 Financial Reporting. This document includes key definitions, recognition criteria, and practical examples for understanding provisions and contingencies in financial reporting.