Answered: Jack Limited, a newly formed company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Jack Limited, a newly formed company has requested you as a financial consultant for advice on how to account for provisions, contingent liabilities and contingent assets. The company’s year-end is 31 December.

REQUIRED The financial controller of Jack Limited has asked you to prepare a brief report which addresses the following:

In accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, discuss the recognition criteria for the following:

(i) A provision

(ii) A contingent liability

(iii) A contingent asset

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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