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Provisions, contingent liabilities and contingent assets - Coggle Diagram
Provisions, contingent liabilities and contingent assets
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Provisions
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Measurement
The amount recognised as a provision should be the bst estimate of the expenditure required to settle the present obligation at the end of the reporting period
Where a large population of items is being measured, the obligation is estimated by weighting all possible outcome by their associated probabilities
When measuring a single obligation or liability, the individual most likely outcome may be the best estimate
The entity should consider all possible outcomes in all cases, including
The use of expert opinion, legal advice or managements own judgement based on past experience
The use of the expected value method that uses the most probable outcome and the events which occur frequently for the measurement of one off events
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Consideration of future events likely to occur that may affect the amount required to settle an obligation
The entity should review and appropriately adjust all provisions at each reporting date. A provision should be reversed if circumstances indicate that the outlaw of economic resources is no longer probable
Any change in a provision should be accounted for as a change in accounting estimate and will have prospective application
Contingent liability
Defined as
A possible obligation that arises from past events and whose existence depends upon the occurrence or non occurrence of one or more uncertain future events which are not in the control of the entity or
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It is disclosed as a contingent liability in the notes to financial statements unless the possibility of an outflow of economic benefits or resources is remote
Contingent assets
A contingent asset is a possible asset that arises from a past transaction or event and whose existence depends upon the occurrence or non occurrence of some uncertain future events not wholly within the entity's control
A contingent asset should not be recognised in the financial statements unless it is almost certain that the entity will be entitled to the inflow of economic benefits
If there is no certainty, the entity will disclose such a probable contingent asset in the notes