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Questions and Answers
When the provision involves a large population of items, how is the estimate of the amount of the possible outcomes determined?
When the provision involves a large population of items, how is the estimate of the amount of the possible outcomes determined?
In a continuous range of possible outcomes where each point is as likely as any other, which range should be used?
In a continuous range of possible outcomes where each point is as likely as any other, which range should be used?
In a continuous range of possible outcomes, what is the range to be used when each point in that range is as likely as any other?
In a continuous range of possible outcomes, what is the range to be used when each point in that range is as likely as any other?
When the provision arises from a single obligation, what does the estimate of the amount of the possible outcomes reflect?
When the provision arises from a single obligation, what does the estimate of the amount of the possible outcomes reflect?
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When the provision involves a large population of items, what does the estimate of the amount midpoint of the possible outcomes reflect?
When the provision involves a large population of items, what does the estimate of the amount midpoint of the possible outcomes reflect?
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Study Notes
Definition of Provision
- A provision is a possible obligation arising from a past event.
- It reflects a liability of uncertain timing or amount.
- Distinct from an obligation to transfer funds to another entity.
Recognition of Provision as Liability
- A provision must be recognized as a liability when:
- The amount of the obligation can be measured reliably.
- There is probable outflow of resources embodying economic benefits to settle the obligation.
- There exists a present obligation resulting from a past event.
- All the mentioned criteria are necessary for the recognition of a provision as a liability.
Constructive Obligation
- A constructive obligation arises from:
- An entity's actions that accept responsibilities based on past practices, published policies, or current statements.
- The establishment of a valid expectation in other parties that the entity will fulfill these responsibilities.
Event Creating Obligation
- An event that creates a legal or constructive obligation occurs when:
- The entity has no realistic alternative to settling the obligation.
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Description
Test your knowledge of financial accounting with this quiz on provisions and liabilities. Answer questions on the correct definition of a provision and when a provision should be recognized as a liability. Review key concepts related to obligations, liabilities, and financial reporting.
