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sets the criteria for recognition and measurement of provision, contingent…
sets the criteria for recognition and measurement of provision, contingent liabilities, contingent assets
Provision
“uncertain” is very important here, because if timing and amount are certain or almost certain, then it's not a provision but payable or an accrual.
if there is no past event, then there is no liability and no provision should be recognized.
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obligations can be: legal (arising from legislation, a contract or other legal act) & constructive (arising from some business practice or customs and created an expectation in other parties to fulfill the obligation)
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If just one of them is not met, then:
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Measurement
There are 2 basic methods of measuring a provision: expected value method (if there is a range of possible outcomes or you measure the provision for large amount of items) & most likely outcome (suitable in the case of a single obligation or just 1 item)
amount of the provision should be measured at the best estimate of the expenditures required to satisfy the obligation.
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contingences
Contingent liability: possible obligation from past event to confirm in future or when the outflow is not probable (<50%), the amount cannot be measured. No journal entry, only appropriate disclosures in the notes.
Contingent asset: possible asset arising from past events that will be confirmed by some future events not fully under the entity’s control. Same as liability: only disclosures.
IAS 37. Provisions, Contingent Liabilities & Contingent Assets