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.

Accepted Answer

IAS 37 indeed deals with provisions, contingent liabilities, and contingent assets, which arise when there is uncertainty about the occurrence of a future event or the amount of the obligation, and how to account for them.

Question 2

How should the amount of a provision be set when the time value of money is material?&#10;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&#10;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&#10;C)As the present value expected to settle an obligation,with no discount of expenditures&#10;D)As the future value expected to settle an obligation,with no discount of expenditures

Accepted Answer

When the time value of money is material, the best method to set the amount of provision is by calculating the present value expected to settle an obligation. This should be done with expenditures discounted at a pre-tax rate that reflects current market assessments of the time value of money and the specific risks. This approach takes into account the fact that a dollar to be paid out in the future is worth less than a dollar paid out immediately due to the opportunity cost of not having the money available to invest or use for other purposes.

Question 3

Which of these best describes the requirement of IAS 37 for review and adjustment of provisions?&#10;A)Provisions do not need review or adjustment&#10;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&#10;C)Provisions should be reviewed monthly and be adjusted accordingly&#10;D)Provisions should be reviewed at each balance sheet date,and be adjusted accordingly

Accepted Answer

IAS 37 requires provisions to be reviewed at each balance sheet date and adjusted accordingly. This is because the estimate of the amount needed to settle the obligation may change over time due to changes in circumstances or new information becoming available. Therefore, it is necessary to regularly review and adjust provisions to reflect the best estimate of the amount required to settle the obligation.

Question 4

IAS 37 was introduced to reduce creative accounting within accounts

Accepted Answer

IAS 37 provides guidance on the recognition, measurement, and disclosure of provisions, contingent liabilities, and contingent assets. The purpose of this standard is to reduce the possibility of creative accounting practices within financial statements by ensuring that provisions, contingent liabilities, and contingent assets are recognized and measured in a consistent and transparent manner.

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.

Accepted Answer

When it is impossible to make a reliable estimate of the amount of a provision, the provision should not be recognized in the financial statements, as per accounting standards. Instead, a disclosure in the notes to the financial statements is required to inform users about the nature of the obligation and the uncertainty of the amount.

Question 6

IAS 37 covers accounting for provisions,contingent liabilities and contingent assets.Which of these is an exception to IAS 37?&#10;A)items resulting from executor contracts&#10;B)construction contracts&#10;C)items where the contract is onerous&#10;D)retirement benefits

Accepted Answer

Items resulting from executor contracts are not covered by IAS 37.

Question 7

Which of these is not a contingent liability?&#10;A)The obligation a transport company may face to clean up an environment if a cargo they transport causes contamination after a road accident.&#10;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&#10;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&#10;D)The obligation the transport company faces to restore a wall which was accidentally demolished during an accident.

Accepted Answer

The answer of Which of these is not a contingent...

Question 8

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

Accepted Answer

IAS 37 requires a contingent liability to be disclosed in the financial statements, not charged to the accounts. A provision (charge to the accounts) is only recognized if it is a present obligation resulting from past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and the amount can be reliably estimated.

Question 9

Provisions are measured after the effect of any tax consequences

Accepted Answer

Provisions are measured before the effect of any tax consequences. Tax effects are considered separately in the calculation of deferred tax assets or liabilities.

Question 10

Which is IAS 37's correct definition of a 'probable' outflow?&#10;A)A probable outflow is the outflow which is more likely to happen than any other individual possible outcome&#10;B)A probable outflow is any outflow which has a reasonable chance of happening ie a greater than 30% probability.&#10;C)A probable outflow is an outflow which is more likely to happen than all other outcomes combined,i.e.a 51% probability.&#10;D)A probable outflow is an outflow which has any chance of happening

Accepted Answer

IAS 37 defines a 'probable' outflow as one that is more likely to occur than not, meaning it has a greater than 50% chance of happening. This is effectively described as being more likely than all other outcomes combined, which equates to a probability of more than 50%.

Deck 20: Provisions, contingent Liabilities and Contingent Assets