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level: Provisions and Contingencies

Questions and Answers List

level questions: Provisions and Contingencies

QuestionAnswer
What is a provision?"A liability of uncertain timing or the amount."
What is a contingent asset?An asset that may be resulted but is uncertain.
How is the recognition of provisions accounted for?Dr. Expenses Cr. Provisions
What are the criteria for the recognition of provisions?- The entity has a present obligation - It is *probable* that there will be an outflow of economic resources to settle the obligation - A reliable estimate of the obligation can be made
If there is a probability of a liability what should be done?It should be provided for.
If it is almost certain that there will be a contingent asset, what should be done?It should be recognised.
If there is the probability of a contingent asset, what should be done?There should be a disclosure note made in the financial statement.
If there is a possibility that there will be a contingent liability, what should be done?There should be a disclosure note made in the financial statement.
If there is a possibility that there will be a contingent asset, what should be done?It should be Ignored
If there is a remote chance that there will be a contingent asset, what should be done?It should be Ignored
If there is a remote chance that there will be a contingent liability, what should be done?It should be Ignored
When should contingent liabilities be provided for in the financial statements?When it is probable that they will arise.