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IAS 37
Provision - Coggle Diagram
IAS 37
Provision
Recognition Criteria (meet all 4)
3P + 1R
- Present obligation (legal / constructive)
- past event
- probable outflow (more likely than not >50%)
- reliable estimate (estimate certainty)
Fulfill all (4), then create provision recognized in SOFP
Not fulfill all 4, treat as contingent liabilities & disclosure it in the notes of the account.
Measurement Criteria
- best estimate / rational/ uncertainty/ past history
- risk & uncertainly (professional)
- time value of money (NCL)
- future event
- G/L on disposal (ignore)
-
Specific Situation
-
Onerous contracts
Provision for additional costs (have limited to the unavoidable cost)
- even make a loss but also want to continue operation
Restructuring
- plan to discontinue the business / change the management structure
-
Restructuring done in the future
- if binding sale agreement / through a sale = NO Provision
- if closure/ change the management = Provision
Recognition
Provision (fulfill all)
- has detailed formal plan
- business,
- principal location,
- no.of employees
- expenditure
- when the plan implemented
- plan should ASAP
- unlikely to have significant changes of plan
- public announcement
- valid expectation
Measurement
(include direct expenditure arising from the restructuring)
- necessarily entailed by the restructuring
- not associated with ongoing concern
excluded: charged to SOPL
- retraining staff
- marketing
- investment in new system
Possible Provision:
- Warranties (genuine provision, large population)
- Major repairs
(crn yr = provision, future = no provision)
- Self-insurance (no longer justifiable under IAS37 as no past event)
- Environmental contamination (if broken current environmental = provision for environmental must be made)