30 Questions
What types of obligations are recognised as provisions in an entity's statement of financial position?
Those existing independently of future actions
Which of the following is an example of an obligation that would lead to a provision being recognized?
Penalties for unlawful environmental damage
Why might an entity not recognize a provision for future expenditure, even if it intends or needs to carry out that expenditure?
The entity can avoid the expenditure by changing its future actions
What is a key characteristic of an obligation?
It is always owed to another party
Why is fitting smoke filters in a certain factory not recognized as a provision according to the text?
The factory may avoid this expenditure by changing its method of operation
Which statement best describes the recognition of liabilities in an entity's statement of financial position?
Only liabilities arising from past events are recognized as provisions
What does an entity need to disclose concerning future events, as per paragraph 48?
Major assumptions made
When must an entity disclose information about contingent liabilities?
If the possibility of any outflow in settlement is remote
What should an entity provide when disclosing each class of contingent liability?
Brief description, financial effect, and uncertainties
How should an entity determine which provisions or contingent liabilities may be aggregated to form a class?
By considering the similarity in nature of the items
What is required for an entity to disclose concerning expected reimbursements?
Amount of any asset recognized for expected reimbursement
Why is it important for an entity to disclose uncertainties related to contingent liabilities?
To provide clarity on potential outflows
When is disclosure required under IAS 10 Events after the Reporting Period for a restructuring plan?
If the entity starts implementing the plan after the reporting period and it is material.
When can a constructive obligation to restructure be created?
By earlier events combined with a management decision.
In what situation does an entity have a constructive obligation to restructure?
Once board approval has been obtained and communicated for restructuring.
What is necessary for a constructive obligation to restructure to exist?
Conditions laid out in paragraph 72 of IAS 10.
What role do employee representatives play in the restructuring process?
Board approval is subject to employee representatives' agreement.
How does IAS 10 Events after the Reporting Period impact disclosure of restructuring plans?
It requires disclosure if non-disclosure could influence financial statement users' decisions.
When should a provision be recognized?
When there is a past event and a present obligation
In what situation should no provision be recognized?
When all conditions for recognition are not met
How is a present obligation determined in cases where it is not clear?
By considering evidence and determining if it is more likely than not
In what cases may it be disputed whether certain events result in a present obligation?
In rare cases, for example, in a lawsuit
What does an entity consider when determining if a present obligation exists at the end of the reporting period?
All available evidence including expert opinions
What happens if there is uncertainty about whether a past event has given rise to a present obligation?
The entity does not recognize a provision until certainty is achieved
What costs relate directly to a contract according to the text?
Incremental costs like direct labour and materials
When does an entity recognize any impairment loss on assets used in fulfilling a contract?
Before establishing a separate provision for an onerous contract
What types of events are examples of restructuring according to the text?
Sale or termination of a line of business
When is a provision for restructuring costs recognized?
Only when general recognition criteria for provisions are met
Which of the following would not be considered a cost directly related to a contract?
Allocated marketing costs for the entire business
What would trigger the recognition of an impairment loss on assets used in fulfilling a contract?
Occurrence of an impairment loss
Test your knowledge on costs related directly to a contract as per IFRS standards, including incremental costs and allocation of other expenses. Learn about provisions for onerous contracts under IAS 37.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
