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Questions and Answers
A contingent liability is a present obligation that is probable and measurable.
A contingent liability is a present obligation that is probable and measurable.
False
A provision can be recognized when the payment is more likely than not to occur.
A provision can be recognized when the payment is more likely than not to occur.
True
Current liabilities may include obligations that are due beyond one year.
Current liabilities may include obligations that are due beyond one year.
False
The best estimate of a provision must be determined at the balance sheet date.
The best estimate of a provision must be determined at the balance sheet date.
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Contingent assets are possible liabilities that arise from uncertain future events.
Contingent assets are possible liabilities that arise from uncertain future events.
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Dividends in arrears on cumulative preference shares are not disclosed as a liability.
Dividends in arrears on cumulative preference shares are not disclosed as a liability.
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Deposits and advances are always classified as current liabilities.
Deposits and advances are always classified as current liabilities.
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Tax liabilities, such as payroll taxes, are included in the liabilities section under VAT payable.
Tax liabilities, such as payroll taxes, are included in the liabilities section under VAT payable.
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A prior year reconciliation of provisions is required under IAS 37.84.
A prior year reconciliation of provisions is required under IAS 37.84.
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Customer loyalty awards are recognized as an entity obligation and can be split based on the awarding body.
Customer loyalty awards are recognized as an entity obligation and can be split based on the awarding body.
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Premiums reported as selling expenses are not considered a component of the transaction price.
Premiums reported as selling expenses are not considered a component of the transaction price.
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Collection in advance is classified under unearned revenues until the performance obligation is fulfilled.
Collection in advance is classified under unearned revenues until the performance obligation is fulfilled.
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Discount vouchers and customer loyalty awards are recorded as current liabilities regardless of the redemption period.
Discount vouchers and customer loyalty awards are recorded as current liabilities regardless of the redemption period.
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Study Notes
Provisions, Contingencies, and Other Liabilities (IAS/PAS 37)
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Current Liabilities: Short-term financial obligations due within one year or a normal operating cycle. Three key characteristics: present obligation, arises from past events, results in resource outflow.
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Provisions: Liabilities of uncertain timing or amount. Requires: a present obligation from a past event, probable payment, and reliably estimable amount. Measurement uses the best estimate of expenditure required, discounted to present value using a pre-tax rate reflecting time value of money and specific liability risks. Includes provisions for one-off events and large populations of events.
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Remeasurement of Provisions: Provisions reviewed and adjusted at each balance sheet date. If outflow becomes improbable, the provision is reversed.
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Contingent Liabilities: Possible obligations dependent on uncertain future events outside the entity's control.
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Examples of Provisions: Environmental clean-up, damages, warranties, bonuses.
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Other Liabilities: VAT payable, payroll taxes (SSS, PAG-IBIG, PhilHealth, WTax), discount vouchers/coupons, customer loyalty awards, unearned revenues (collection in advance, upon performance obligation satisfaction), gift certificates outstanding, dividends payable (cash - current; undeclared - not a liability; arrears on cumulative preference shares - disclosed; property and scrip - generally current; share - not a liability), deposits and advances.
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Financial Statement Presentation: Current and non-current liabilities are distinguished, excluding liquidity. Current liability criteria include: normal operating cycle, traded, within 12 months, no unconditional right to defer settlement for at least 12 months. Warranties, dividends, and deposits/advances may be split between current and non-current.
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Disclosure Requirements: Reconciliation for each provision class is required, showing opening and closing balances, additions, usage, reversals, discount unwinding/rate changes. A prior-year reconciliation is not needed.
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Description
Test your understanding of IAS/PAS 37, focusing on current liabilities, provisions, and contingent liabilities. This quiz covers key characteristics, remeasurement, and examples of provisions. Enhance your knowledge of financial reporting standards and their implications.
