100%(1)1 out of 1 people found this document helpful
This preview shows page 2 - 4 out of 13 pages.
Module 10Page 2 of 13
Module 10: LiabilitiesLVCIn accounting for a transfer of a financial asset that does not qualify for derecognition, the entity shall not offset the transferred asset and the associated liabilityIV.Provisions under IAS 37ScopeThis Standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except:Those resulting from executory contracts, except where the contract is onerous; andThose covered by another Standard.Provisions and other liabilitiesProvisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement.Accruals are often reported as part of trade and other payables, whereas provisions are reported separately.Provisions and contingent liabilitiesIn a general sense, all provisions are contingent because they are uncertain in timing or amount.However, the term ‘contingent’ is used for liabilities and assets that are not recognizedbecause their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.RecognitionA provision shall be recognized when:a.An entity has a present obligation (legal or constructive) as a result of a past event;b.It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; andc.A reliable estimate can be made of the amount of the obligation.If these conditions are not met, no provision shall be recognized.Present obligationIn rare cases it is not clear whether there is a present obligation. In these cases, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the end of the reporting period.The evidence considered includes any additional evidence provided by events after the reporting period. On the basis of such evidence:a.Where it is more likely than not that a present obligation exists at the end of the reporting period, the entity recognizes a provision (if the recognition criteria are met); andb.Where it is more likely that no present obligation exists at the end of the reporting period, the entity disclosesa contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote.Past eventA past event that leads to a present obligation is called an obligating event. This is the case only:a.Where the settlement of the obligation can be enforced by law; orb.In the case of a constructive obligation, where the event (which may be an action of the entity) creates valid expectations in other parties that the entity will discharge the obligation.