PAS 37 Quiz: Test Your Knowledge of International Accounting

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Questions and Answers

Which type of liabilities are included in account payables?

Liabilities for goods and services received without invoices

Liabilities for goods and services received with invoices

Liabilities for goods and services received but not matched with invoices (correct)

Liabilities for goods and services not received

What do trade payables represent?

The amount of cash that companies owe to their customers

The amount of cash that companies owe to their shareholders

The amount of cash that companies owe to their employees

The amount of cash that companies owe to their suppliers (correct)

How are trade payables classified in the balance sheet?

Within current liabilities (correct)

Within long-term liabilities

Within non-current liabilities

Within short-term liabilities

Which of the following is an example of a payable?

Received deposits as a guarantee of performance Signup and view all the answers

When are trade payables recognized?

When goods or services are received Signup and view all the answers

What is a debit note?

A document issued by the seller to the buyer Signup and view all the answers

When are payables derecognized?

When they are paid or transferred to another party Signup and view all the answers

Which of the following is included in the amortized cost of a financial asset or financial liability at each reporting date?

The amount at which the financial asset or financial liability is measured at initial recognition Signup and view all the answers

Trade payables are usually measured at what amount?

Undiscounted amount Signup and view all the answers

What is the purpose of calculating the IRR (interest rate of return) for a loan?

To calculate the effective interest rate Signup and view all the answers

Which accounting standard requires trade payables to be recognized at amortized cost?

OIC Signup and view all the answers

Which operation is known as reverse factoring or indirect factoring?

Transferring payables to another entity against cash Signup and view all the answers

What is the reason for reverse factoring?

To solve liquidity issues Signup and view all the answers

How is reverse factoring similar to receiving financing from a bank?

The debtor turns to the bank for cash against payables Signup and view all the answers

What is the upfront fee in the context of borrowing from a bank?

An additional cost of capital paid by the borrower Signup and view all the answers

Which of the following is an example of a provision that a company may be required to record?

Post-employment benefit obligations Signup and view all the answers

When are taxes on the result of the year typically paid in Italy?

In June of the following year Signup and view all the answers

What represents a risk related to any lawsuit or claims raised during the course of business?

Other legal risks Signup and view all the answers

In which situations might compensations for the month of December be paid in the first days of January?

When workers have matured some bonuses Signup and view all the answers

According to IFRS 9, when should a company derecognize the original contract and record a new one?

When the new conditions differ by at least 10% from the original terms Signup and view all the answers

What is the qualitative assessment in determining if a contract has been substantially modified?

Reading the contract clauses Signup and view all the answers

When is a loan derecognized according to IFRS 9?

When the loan is paid off Signup and view all the answers

What is the significance of a 10% difference in the amount to be paid under the new conditions compared to the previous one?

It determines if the loan should be derecognized Signup and view all the answers

According to IAS 37, when is an outflow of resources or other event regarded as probable?

If the event is more likely than not to occur Signup and view all the answers

When should a provision be recorded?

When it is probable that the company should pay the amount Signup and view all the answers

What should an entity do if there is no reliable estimate for a liability?

Disclose it as a contingent liability Signup and view all the answers

How should the amount recognized as a provision be determined?

As the best estimate of the expenditure required to settle the present obligation Signup and view all the answers

Which of the following is a factor that may be considered when recognizing a provision for clean-up costs?

The entity's past experience and future expectations Signup and view all the answers

When should the cost of repairs for manufacturing defects be recorded in the income statement?

When the provision for warranty obligations is recorded Signup and view all the answers

In the oil industry example, why is a provision recognized for the costs of clean-up?

Because of the virtual certainty of legislation requiring cleaning up Signup and view all the answers

In the case of the wedding example, why are legal proceedings started seeking damages from the entity?

Because ten people died possibly as a result of food poisoning Signup and view all the answers

According to IAS 37, a provision shall be recognized if:

The entity has a present obligation arising from a past event Signup and view all the answers

What is necessary for an event to be considered an obligating event?

The entity has no realistic alternative to settling the obligation Signup and view all the answers

What is the difference between a provision and a liability?

A provision involves a present obligation, while a liability involves a future obligation Signup and view all the answers

When can a provision be recognized if there is a probable risk of a future liability?

A provision can be recognized if the future liability is uncertain Signup and view all the answers

Study Notes

Liabilities and Payables

Account payables include short-term liabilities that arise from the purchase of goods or services on credit.
Trade payables represent amounts owed to suppliers for goods or services purchased.
Trade payables are classified as current liabilities on the balance sheet.

Recognition and Measurement of Trade Payables

Trade payables are recognized when the entity receives the goods or services.
Trade payables are usually measured at the original invoice amount.
A debit note is a document sent to the supplier to reduce the amount owed.

Derecognition of Trade Payables

Trade payables are derecognized when the payment is made.
A financial asset or financial liability is derecognized when the entity no longer has the contractual rights or obligations.

Amortized Cost and IRR

The amortized cost of a financial asset or financial liability includes the original amount, adjusted for interest and fees.
The purpose of calculating the IRR (interest rate of return) is to determine the effective interest rate of a loan.
IFRS 9 requires trade payables to be recognized at amortized cost.

Reverse Factoring

Reverse factoring or indirect factoring is a financing operation where the supplier's bank pays the supplier, and the entity repays the supplier's bank.
The reason for reverse factoring is to provide financing to the supplier.
Reverse factoring is similar to receiving financing from a bank, but with the supplier's bank as the intermediary.

Provisions

A provision is a liability of uncertain timing or amount.
Examples of provisions include warranties, lawsuit claims, and clean-up costs.
Taxes on the result of the year are typically paid in Italy in the following year.
A provision is recognized when a company has a present obligation as a result of a past event.

IAS 37 and IFRS 9

According to IAS 37, a provision shall be recognized if there is a present obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation.
According to IFRS 9, a loan is derecognized when the entity no longer has the contractual rights or obligations.
A provision should be recorded when there is a probable risk of a future liability.

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Test your knowledge of IAS 37 with this quiz! Learn about the criteria for determining a probable outflow of resources or other event according to IAS 37 and understand when a contingent liability should be disclosed.

IAS 37 Quiz

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