Question 1

For a small population, the best estimate for the amount of a provision that must be recognized is the expected value of the possible outcomes.

Accepted Answer

For a small population, the best estimate might not be the expected value of the possible outcomes because the variability and distribution of outcomes can significantly impact the risk assessment and thus the provision amount. Instead, the most likely outcome or a more conservative approach might be used.

Question 2

Once a company has formally decided to restructure its operations, a provision must be made for the restructuring.

Accepted Answer

A provision for restructuring can only be recognized when a detailed formal plan is in place and the company has raised a valid expectation in those affected that it will carry out the restructuring.

Question 3

Under IFRS, most financial liabilities are valued at Fair Value.

Accepted Answer

Under IFRS, most financial liabilities are initially recognized at fair value but are subsequently measured at amortized cost, unless they are classified as at fair value through profit or loss.

Question 4

Warranties provisions may arise from legal or constructive obligations.

Accepted Answer

The answer of Warranties provisions may arise from legal or...

Question 5

A reasonable expectation on the part of a company's stakeholders arising from a company's past practices or behaviour may constitute a constructive obligation in certain instances.

Accepted Answer

The answer of A reasonable expectation on the part of...

Question 6

Executory contracts seldom require a journal entry, while onerous contracts do.

Accepted Answer

The answer of Executory contracts seldom require a journal entry,...

Question 7

Capitalization of borrowing costs on qualifying assets will continue even if work on the asset has temporarily ceased.

Accepted Answer

The answer of Capitalization of borrowing costs on qualifying assets...

Question 8

Current liabilities are usually discounted.

Accepted Answer

Current liabilities are typically not discounted because they are due within one year, and the effect of discounting over such a short period is generally considered immaterial.

Question 9

Loan guarantees must be provided for; the amount of the provision is the probability of payout multiplied by the fair value of the loan guarantee.

Accepted Answer

The answer of Loan guarantees must be provided for; the...

Question 10

An improvement to a company's credit rating under IFRS will lead to a reduction in the carrying amount of any financial liabilities and a gain being reported in OCI.

Accepted Answer

Under IFRS, changes in a company's credit risk related to financial liabilities designated at fair value through profit or loss are recognized in other comprehensive income (OCI), but this does not lead to a reduction in the carrying amount of the financial liabilities. The gain or loss from changes in credit risk recognized in OCI does not affect the carrying amount of the liability; it only impacts the equity through OCI.

Question 11

Under the warranty expense approach, there should be no income statement effects for warranty repairs performed after the year of sale (assuming that accrued warranty expenses and expenditures equal one another).

Accepted Answer

The answer of Under the warranty expense approach, there should...

Question 12

Accounts payable should include only obligations directly related to the primary and continuing operations of an entity.

Accepted Answer

Accounts payable includes all short-term obligations to suppliers and creditors, not just those directly related to primary and continuing operations. This can include various types of expenses and operational costs.

Question 13

Loan guarantees are only recorded if they are likely to be paid.

Accepted Answer

Loan guarantees are recorded as contingent liabilities and are not immediately recorded as expenses or liabilities on financial statements unless it becomes probable that the guarantee will be called upon and a payment will be required.

Question 14

An onerous contract is one where the unavoidable costs of meeting the contract may or may not exceed the benefits derived from the contract.

Accepted Answer

An onerous contract is specifically defined as one where the unavoidable costs of meeting the contract obligations exceed the economic benefits expected to be received from it.

Question 15

Debt issue costs may be expensed or included in the cost of the debt.

Accepted Answer

The answer of Debt issue costs may be expensed or...

Question 16

A company may reclassify a current financial liability to a long-term one only if there is a contractual agreement in place by the reporting date to replace the financing.

Accepted Answer

The answer of A company may reclassify a current financial...

Question 17

Accrued liabilities made due to routine operating expenses are not normally discounted.

Accepted Answer

The answer of Accrued liabilities made due to routine operating...

Question 18

Under IFRS, provisions are always recorded at their expected value.

Accepted Answer

The answer of Under IFRS, provisions are always recorded at...

Question 19

A company decides to relocate a group from a discontinued business segment to a division with ongoing operations.The expenses incurred in doing so would qualify as a restructuring charge.

Accepted Answer

The answer of A company decides to relocate a group...

Question 20

A gain contingency will usually not be recorded in the accounts and reported in the financial statements even though its occurrence is probable.

Accepted Answer

The answer of A gain contingency will usually not be...

Quiz 12: Financial Liabilities and Provisions