ExpertEasy2 marksMultiple Choice
ACCA · Question 31 · Preparing Basic Financial Statements
Section A
Which of the following statements regarding the recognition of provisions under IAS 37 is correct?
Section A
Which of the following statements regarding the recognition of provisions under IAS 37 is correct?
Answer options:
A.
A provision should be recognized for future operating losses if they are highly probable.
B.
A provision should be recognized when there is a present obligation as a result of a past event, an outflow of resources is probable, and a reliable estimate can be made.
C.
A contingent liability must always be recognized as a provision in the statement of financial position.
D.
A provision can be recognized based solely on management's intention to carry out a restructuring, even if no public announcement has been made.
How to approach this question
Recall the three criteria for recognizing a provision under IAS 37: 1) Present obligation from a past event, 2) Probable outflow of economic benefits, 3) Reliable estimate.
Full Answer
B.A provision should be recognized when there is a present obligation as a result of a past event, an outflow of resources is probable, and a reliable estimate can be made.✓ Correct
Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision is recognized only when three conditions are met: an 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.
Common mistakes
Believing provisions can be made for future operating losses or general business risks.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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