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)
prudence asymmetry
Probable Asset
Probable Liabilities
Disclose in the notes of account
Recognized in SOFP
Possible liability
Disclosure in the notes of account
Specific Situation
Future operating losses
NO Provision
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 started/completed = full charged to SOPL
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)