Other Significant Liabilities
CHAPTER STUDY OBJECTIVES
Describe the accounting and disclosure requirements for provisions and contingent
If it is probable that the obligation will require a cash outflow (if it is likely to occur)
and the amount can be reasonably estimabled, the liability should be recorded in the
accounts as a provision. If a cash outflow is only reasonably possible (it could occur), then it
should be disclosed only in the notes to the financial statements as a contingent liability. If the
possibility that the contingency will happen is remote (unlikely to occur), it need not be
recorded or disclosed.
Contrast the accounting for operating and finance leases.
For an operating lease, lease
(or rental) payments are recorded as an expense by the lessee (renter). For a finance lease,
the lessee records the asset and related obligation at the present value of the future lease
Identify additional fringe benefits associated with employee compensation.
fringe benefits associated with wages are paid absences (paid vacations, sick pay benefits,
and paid holidays), postretirement health care and life insurance, and pensions. The two most
common types of pension arrangements are a defined-contribution plan and a defined-benefit
Contingent liabilities should be recorded in the accounts if there is a remote possibility that
the contingency will actually occur.
Answer: F, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Risk Analysis,
AICPA-PC: Problem Solving/Decision Making, IMA: FSA, Sector: General, IFRS: No
A provision is a liability of uncertain timing or amount.
Answer: T, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Risk Analysis,