Evaluate whether the following situations will give rise to a present obligation:
I: Bona Bay Ltd is a large manufacturer of surfboards and provides a two year warranty for all its products from the time of purchase by offering to repair or replace the item.
II: Sea Eagle Ltd operates its offshore oil rigs near Curlew Beach.During the reporting period,there was a major oil spill and the company had publicly announced to undertake clean-up of all the contamination that it caused.There is no environmental legislation on oil spills.
III: A customer sued Neck Bay Ltd for damages from a faulty product.The company hired a legal team to dispute this claim.
IV:
Whitehaven Ltd had guaranteed a bank loan to an associated company.
In compliance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,which of the above situations requires recognition in the financial statements?
A) I, II and III
B) I and II
C) II and III
D) III and IV

Question

Quizplus · Accepted Answer

Situations I and II involve present obligations arising from past events (warranty provision and commitment to clean up an oil spill) where an outflow of resources is probable, thus requiring recognition in financial statements. Situation III involves a potential obligation (contingent liability) depending on the outcome of a lawsuit, and IV involves a financial guarantee, which may not require provision but disclosure, depending on specific circumstances and the entity's policy on financial guarantees.

Evaluate Whether the Following Situations Will Give Rise to a Present