Deck 20: Provisions, contingent Liabilities and Contingent Assets

Question 1

IAS 37 deals with situations where obligations to or from an entity are uncertain in either existence of event and/ or amount of that event.

Answer 1

True

Question 2

How should the amount of a provision be set when the time value of money is material?

A)As the present value expected to settle an obligation,with expenditures discounted at a pre-tax rate that reflects current market assessments of the time value of money and the specific risks
B)As the future value expected to settle an obligation,with expenditures discounted at a pre-tax rate that reflects current market assessments of the time value of money and the specific risks
C)As the present value expected to settle an obligation,with no discount of expenditures
D)As the future value expected to settle an obligation,with no discount of expenditures

Answer 2

A

Question 3

Which of these best describes the requirement of IAS 37 for review and adjustment of provisions?

A)Provisions do not need review or adjustment
B)Provisions should be reviewed at each balance sheet date,but do not need adjustment if the difference is below 10% of the total value
C)Provisions should be reviewed monthly and be adjusted accordingly
D)Provisions should be reviewed at each balance sheet date,and be adjusted accordingly

Answer 3

D

Question 4

IAS 37 was introduced to reduce creative accounting within accounts

Question 5

If the conditions for a provision are met but it is impossible to make a reliable estimate of the amount,the provision should not be recognized in the income statement.

Question 6

IAS 37 covers accounting for provisions,contingent liabilities and contingent assets.Which of these is an exception to IAS 37?

A)items resulting from executor contracts
B)construction contracts
C)items where the contract is onerous
D)retirement benefits

Question 7

Which of these is not a contingent liability?

A)The obligation a transport company may face to clean up an environment if a cargo they transport causes contamination after a road accident.
B)The obligation the transport company faces to clean up their local environment ,which could be settled by staff volunteering at weekends to help with the clean-up of rubbish from their building works
C)The obligation the transport company faces to clean up a coastal environment where a dangerous cargo has spilled into the ocean,where the level of damage has not yet been determined
D)The obligation the transport company faces to restore a wall which was accidentally demolished during an accident.

Question 8

IAS 37 requires a contingent liability to be both disclosed and charged in the accounts.

Question 9

Provisions are measured after the effect of any tax consequences

Question 10

Which is IAS 37's correct definition of a 'probable' outflow?

A)A probable outflow is the outflow which is more likely to happen than any other individual possible outcome
B)A probable outflow is any outflow which has a reasonable chance of happening ie a greater than 30% probability.
C)A probable outflow is an outflow which is more likely to happen than all other outcomes combined,i.e.a 51% probability.
D)A probable outflow is an outflow which has any chance of happening