Liabilities and Provisions Quiz

Liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices.

Current liabilities

Represents the intrinsic value of an asset/liabilities.

A liability that is recognized when there is a probable outflow of resources that embodies economic benefits.

A commercial formal document issued by the seller to the buyer.

When the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.

When it is more likely than not that the event will occur (probability greater than 50%).

If the risk is remote, the company shall do nothing: no disclosure, no recording.

The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

Current liabilities

Liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices.

Represents the intrinsic value of an asset/liabilities.

A liability that is recognized when there is a probable outflow of resources that embodies economic benefits.

A commercial formal document issued by the seller to the buyer.

When the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.

When it is more likely than not that the event will occur (probability greater than 50%).

If the risk is remote, the company shall do nothing: no disclosure, no recording.

The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

A liability for goods and services received that have not been matched with related invoices

The intrinsic value

Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices, while trade payables are recognized in consideration of a commercial transaction

A liability that is recognized when there is a probable outflow of resources that embodies economic benefits

When it is more likely than not that the event will occur (probability greater than 50%)

Disclose but not record

Where there is sufficient objective evidence that they will occur

An operation in which a company transfers its payables to another entity against cash

The amount recognized as a provision according to IAS 37

Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices, while trade payables are recognized in consideration of a commercial transaction, meaning an exchange of goods or services.

An operation where a company transfers its payables to another entity against cash.

A liability that is recognized when there is a probable outflow of resources that embodies economic benefits.

A probable liability is more likely than not to occur (probability greater than 50%), while a possible liability may happen but has a probability lower than 50%.

An essential part of preparing financial statements that does not undermine their reliability.

A commercial formal document issued by the seller to the buyer.

The intrinsic value of an asset/liability.

When it is paid or transferred to another party.

The amount recognized as a provision.

They include both liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices

Trade payables are related to commercial transactions, while account payables are not

A formal document issued by the seller to the buyer

If the entity has a present obligational rising from the law or an existing contract as a result of a past event

A possible liability is more likely to occur than a remote liability

A company transferring its payables to another entity against cash

The amount that is most likely to be required to settle the obligation

Estimates are an essential part of preparing financial statements

Only when there is sufficient objective evidence that they will occur

They are recognized at fair value and then measured at amortized cost according to IFRS 9

Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices, while trade payables are recognized in consideration of a commercial transaction.

A probable liability is more likely than not to occur (probability greater than 50%), while a possible liability may happen but is less likely to occur (probability lower than 50%).

A debit note is a commercial formal document issued by the seller to the buyer to request payment for goods or services that have been delivered or rendered.

When the entity has a present obligational rising from the law or an existing contract as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

A liability that is probable is recognized when there is a probable outflow of resources that embodies economic benefits, while a provision is recognized when there is a possible outflow of resources that embodies economic benefits.

A remote liability is recognized when there is a possible outflow of resources that embodies economic benefits, while a provision is recognized when there is a probable outflow of resources that embodies economic benefits.

An operation by which a company elects for transferring its payables to another entity against cash.

To recognize a liability that is probable and quantify the amount of the obligation.

When the unavoidable costs exceed the economic benefits expected to be received

OIC 31 does not require actualization of amounts

Short-term, post-employment, other long-term, and termination benefits

Wholly before twelve months after the end of the annual reporting period

Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex

Lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards

Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied

Approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration

To determine the amount the company is entitled to receive before recognizing revenue

A contract that is more expensive to fulfill than the economic benefits expected from it

At the end of each reporting period

No

No

Short-term, post-employment, other long-term, and termination benefits

Within twelve months after the end of the annual reporting period

Defined contribution plans are simpler to account for than defined benefit plans

Lease contracts, insurance contracts, financial instruments, and other contractual rights or obligations

Approval and commitment from both parties, identification of each party's rights, and payment terms

A contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it

Short-term benefits, post-employment benefits, other long-term benefits, and termination benefits

Short-term benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, while post-employment benefits are payable after the completion of employment

Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex

IFRS 15 regulates revenue from contracts with customers, excluding lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards

Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied

The promise to transfer goods or services to a customer

The amount of consideration an entity expects to receive in exchange for transferring goods or services to the customer

Relative stand-alone selling prices

A contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.

OIC 31 does not require actualization of amounts, while IAS 37 does.

Short-term, post-employment, other long-term, and termination benefits.

Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex.

Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied.

An assessment to determine the amount the company is entitled to receive before recognizing revenue.

The promise to transfer goods or services to a customer.

The process of allocating transaction price to each separate performance obligation.

All criteria must be met, including approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration.

Variable consideration should only be included in transaction price if it is probable and can be reliably estimated.

A contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it

Short-term, post-employment, other long-term, and termination benefits

Wholly before twelve months after the end of the annual reporting period in which the employees render the related service

Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex

Excludes lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards

Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied

A customer's intent and ability to pay the promised consideration

The promise to transfer goods or services to a customer

When they are not considered to be part of the warranty

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to a significant risk of changes in value.

Operating, investing, and financing activities.

Operating activities.

All of the above.

Cash payments to acquire property, plant and equipment, intangibles and other long-term assets.

Taxable income

Difference in the value of an expense/income asset/liability between accounting and fiscal laws

To record future tax assets

Fiscal depreciation is always higher than accounting depreciation

Current taxes are based on taxable income, while deferred taxes are based on accounting profit

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Consideration that is contingent on the occurrence or nonoccurrence of future events.

Based on the relative stand-alone selling prices of each performance obligation.

The ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

To predict claims on future cash flows by providers of capital to the entity

Direct method

Cash proceeds from issuing shares or other equity instruments

The direct method reports major classes of gross cash receipts and gross cash payments, while the indirect method adjusts profit or loss for non-cash transactions

Indirect method

To show the sources of inflow and outflow of cash

Revenues that cannot be taxed

Costs that cannot be used to reduce the tax basis

To have a better representation of tax incidence in the profit and loss

Balance sheet shows the consistency of net assets, cash flow statement shows the sources of inflow and outflow of cash

Activities that are at the core of the business of a company

Non-cash expenses and revenue, changes in working capital, and cost included in investing activities

Expenses/revenues that didn't have any impact on cash available and didn't affect the working capital

Depreciation, provisions, impairment, revaluation of assets, non-distributed earnings related to investments evaluated with equity method

To provide a more accurate picture of the cash inflows and outflows of the company

Cost of goods, Cost of services, Cost of personnel, Administrative costs, Finance costs, etc.

Variable costs depend on volumes, while fixed costs are sustained independently of volumes.

The greater the volumes produced, the lower the average cost of item, leading to higher profitability.

Costs are driven by revenues in order to respect the matching principle.

To ensure that expenses are recognized in the same period as the revenue they helped generate.

Deferred revenue is revenue that has been earned, but for which no cash has been received, while accrued revenue is an obligation on a company's balance sheet that receives the advance payment because it owes the customer products or services

Deferred expenses is a cost that has already been paid, but which has not yet been incurred, while accrued expenses is a cost that has been paid but not incurred yet

Deferred revenue is revenue that has been earned, but for which no cash has been received, while deferred expense is a cost that has already been paid, but which has not yet been incurred

Accrued revenue is revenue that has been earned but not yet received, while accrued expense is a cost that has been incurred but not yet paid

Deferred revenue is revenue that has been earned, but for which no cash has been received, while accounts payable is an obligation on a company's balance sheet that receives the advance payment because it owes the supplier products or services

The amount of consideration an entity expects to receive in exchange for goods or services

Consideration that may vary due to discounts, rebates, refunds, or performance bonuses

In an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer

The ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset

To predict future claims on cash flows by providers of capital

Cash proceeds from issuing shares or other equity instruments

Direct method

Indirect method

Payments for debt instruments considered to be cash equivalents

To improve the representation of tax incidence in the profit and loss statement

Non-taxable items cannot be taxed, while non-deductible items cannot be used to reduce the tax basis

To show the sources of inflow and outflow of cash

IAS 7

Temporary differences are eliminated in the calculation of taxable profit, while permanent differences are not

To determine the cash generated by operating activities

Depreciation, provision, impairment, revaluation of assets, non distributed earnings related to investments evaluated with equity method

All changes in working capital, non-cash expenses and revenue, cost included in investing activities

Depreciation, provision, impairment, revaluation of assets, non distributed earnings related to investments evaluated with equity method

The cash flow

Short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value

Cash payments to suppliers for goods and services

To provide information on a company's financial structure and liquidity

Cash payments to acquire property, plant and equipment

Cash comprises cash on hand and demand deposits, while cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value

The taxable income

Fiscal value of an asset at initial recognition is different from accounting value

When the recover of the asset or the reduction of the liability will influence future payment of taxes

The accounting result is the profit/loss for the period before the tax, while the fiscal cost is the total amount of taxes current and deferred included in the calculation of profit/loss for the period

The GAAP and tax laws may lead to a different result

Deferred revenue is an increase in liability, while deferred expense is an increase in asset

Accrued revenue is an increase in asset, while accrued expense is an increase in liability

Deferred expenses are costs that have been paid but not yet incurred, while accrued expenses are costs that have already been paid but not yet incurred

When the service is rendered or the goods are received

IFRS recognizes costs when the property is transferred, while OIC recognizes costs when the service is rendered or the goods are received

To match costs with revenues in order to respect the matching principle

Variable costs are directly dependent on volumes, while fixed costs don't increase or decrease if production stops

The higher the volumes, the lower the incidence of fixed costs on profitability

To understand how changes in production volumes affect costs and profitability

Profitability will rise when business is running well and volumes are high

The composition of short-term assets and short-term liabilities

Inventories

It is a cash inflow

To convert financial information into percentages using a common base

To examine the inflow and outflow of cash from operating, investing, and financing activities

To evaluate the current share price of a publicly held company's stock

It is a cash outflow

It is a cash outflow

Depreciation

To obtain a more accurate picture of cash flow

The process of estimating the market value of a financial asset or liability

Intrinsic value reflects the objective, hard, visible, tangible, concrete, verifiable part of an asset, while utility value represents the extension of user's want/need fulfillment and satisfaction

Historical cost is the purchase or production cost plus other expenses, while present value is a variety of Fair Value

Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation

The ability to pay obligations in the long run and also to maintain a balance between assets and liabilities

Profitability is the ability of a business to earn profits after paying all expenses directly related to the generation of the revenue, while liquidity regards the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term debt obligations

To set performance targets and verify achievement

To provide essential information for the preparation of financial statements

Level 1, Level 2, Level 3

Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability

Items traded in the market are homogeneous, willing buyers and sellers can normally be found at any time, prices are available to the public

Bad debts, inventory obsolescence, the fair value of financial assets or financial liabilities, the useful lives of, or expected pattern of consumption of the future economic benefits embodied in depreciable assets, warranty obligations

The composition of short-term assets and liabilities

Trade receivables

It is a cash inflow

It is a reduction in cash flow

Depreciation

To obtain the cash flow

To measure economic and financial values

To convert financial information into percentages using a common base

To determine the real value of a business' shares

Vertical analysis converts financial information into percentages using a common base, while horizontal analysis facilitates the comparison of financial statements over time

The process of estimating the market value of a financial asset or liability

In investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events, and in litigation.

Intrinsic value generates patrimonial valuation methods and utility value generates non-patrimonial valuation methods

Present (market) value, a variety of Fair Value

Inputs derived from observable market data

Willing buyers and sellers must be found at any time

Inventory obsolescence

To reflect inherent limitations in knowledge or data

To assess a company's basic financial health

Liquidity is the ability to pay obligations in the long run, while solvency regards the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term debt obligations

The ability of a business to earn profits after paying all expenses directly related to the generation of the revenue

Estimates are an essential part of financial statement preparation