Define provision and explain its recognition criteria.

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Answer 1

Question

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.

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.

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Answer 2

Question

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.

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.

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Answer 3

Question

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.

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.

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Answer 4

Question

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.

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.

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Answer 5

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.

Answer 6

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.

Answer 7

Chapter 5, Problem 1Q

To determine

Define provision and explain its recognition criteria.

Answer 8

Expert Solution & Answer

Explanation of Solution

Provision:

Provision is an amount which is kept to meet the future liabilities. Provisions are created when the timing or amount to settle the liability are not accurately known.

As per IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”, provision should be recognized, if the following three conditions are met:

Organization has a present obligation because of one or more past events.
There is a probability (more likely than not) that, such obligation would result in outflow of funds from the organization.
A provision to meet that obligation can be reliably estimated.