FAR Liabilities

7/25/2019 FAR Liabilities

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Saint Paul School of Business and Law

CPA REVIEW CENTER

Name

Financial

Accounting &Reo!tingLiabilities (FAR-007)


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BASIC CONCEPTS ON PROVISIONS ANDCONTINGENT LIABILITIES:

Provision " e#isting lia$ilit% of unce!tain tiing o!aount' the entit% has !esent o$ligation' legal o!

const!ucti(e as a !esult of ast e(ents)obligating event*+This is also e,ui(alent to an estiated lia$ilit%+It is the unce!taint% of a !o(ision that !ia!il%distinguishes it f!o othe! lia$ilities+

Legal obligation" a!ises f!o a cont!act' legislation o!othe! oe!ation of law+

Constructive obligation" de!i(ed f!o entities action

whe!e-a+ the entit% has indicated to othe! a!ties that it willaccet ce!tain !esonsi$ilities $% !eason ofesta$lished atte!n of ast !actices' u$lishedolic%' o! a su.cientl% seci/c cu!!ent stateent0and

$+ the entit% has c!eated a (alid e#ectation that itwill discha!ge those !esonsi$ilities+

Obligating event 1 e(ent that c!eates a legal o!const!ucti(e o$ligation $ecause the entit% has no otion$ut to settle the o$ligation c!eated $% the e(ent+

Reliable estimate " since the !o(ision is unce!tain'

estiation is essential in easu!ing a !o(ision+ )PAS 23'

a!+ 45*+ Whe!e no !elia$le estiate can $e ade' no

lia$ilit% is !ecogni6ed+

MEASUREMENT OF A PROVISION-1 the aount !ecogni6ed as a !o(ision should $e the

best estimateof the e#enditu!e !e,ui!ed to settle the

!esent o$ligation at the end of the !eo!ting e!iod+

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Best estimate is the aount that the entit% would

!ationall% a% to settle the o$ligation at the end of the

!eo!ting e!iod o! t!ansfe! it to a thi!d a!t% at the that

tie+

a+ Single obligation" aount ad7usted fo! the e8ect of

othe! outcoes$+ Range of possible outcomes" the idoint of the

!angec+ Large population of items" e#ected (alue)weights

of all ossi$le outcoes*

Other measurement !ns"#erat"!ns:

9+ Risk an uncertainties " ine(ita$le e(ents and

ci!custances a!e ta:en into account when

!eaching an estiate+4+ !resent value of obligation" e8ects of tie (alue of

one%' if ate!ial' shall $e conside!ed using a

!eta# discount !ate+2+ Future events " futu!e e(ents that a8ect the

aount !e,ui!ed to settle the o$ligation is !e;ected

whe!e the!e is su.cient e(idence that the% will

occu!+


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!ecogni6ed+ )i+e+ !o(ision fo! lant disantling

cannot $e used fo! en(i!onent ollution clais*>+ Future operating losses " !o(ision shall not $e

!ecogni6ed fo! futu!e oe!ating losses+?+ 'nerous contract " if an entit% has an one!ous

cont!act' the !esent o$ligation unde! such

cont!act shall $e !ecogni6ed and easu!ed as a

!o(ision at the @least net cost of e#iting f!o the

cont!act )PAS 23' a! =>* which is the lowe!

aount $etween the cost of ful/lling the cont!act

o! the coensation o! enalt% a!ising f!o failu!e

to ful/ll the cont!act+

"#amples of provisions

9+ Wa!!anties4+ En(i!onental containation2+ ecoissioning o! a$andonent cost


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scoe of a $usiness of an entit% o! the anne! in which

that $usiness is conducted+ )PAS 23' a! 9*

E%ents that ma& 'ua(")& as restrutur"n*:

a+ Sale o! te!ination of a line of $usiness$+ Closu!e of $usiness location in a !egion o!

!elocation of $usiness acti(ities f!o one location

to anothe! o! !elocation of head,ua!te! f!o one

count!% to anothe!+c+ Change in anageent st!uctu!e' such as

eliination of a la%e! of anageent o! a:ing all

functional units autonoous+d+ Fundaental !eo!gani6ation of an entit% that has a

ate!ial and signi/cant iact on its oe!ations+

Provision for Restructuring " is !e,ui!ed since a

const!ucti(e o$ligation a% a!ise f!o the decision to

!est!uctu!e+ Two conditions should $e et fo! a

!ecogni6ing a !o(ision fo! !est!uctu!ing-

A *%e entit+ %as a etaile formal plan for t%e

restructuring ,%ic% incluesi+ Business $eing !est!uctu!edii+ P!incial location a8ectediii+ Location' function and a!o#iate nu$e!

of elo%ees who will $e coensated fo!

te!inating thei! elo%enti(+ ate when the lan will $e ileented(+ E#enditu!es that will $e unde!ta:en+

B+ *%e entit+ %as raise a vali e#pectation in t%e

mins of t%ose aecte t%at t%e entit+ ,ill carr+

out t%e restructuring b+ starting to implement t%e

plan an announcing t%e main features to t%ose

aecte b+ it

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"mount of restructuring #rovision " includes onl%

di!ect e#enditu!es a!ising f!o the !est!uctu!ing+

E#enditu!es !elated to ongoing acti(ities of the entit% a!e

not included+

PAS 3,- .ar /1 seci/call% e#cludes the following

e#enditu!es f!o the !est!uctu!ing !o(isions-

a+ Cost of !et!aining o! !elocating continuing sta8$+ a!:eting o! ad(e!tising !og!a to !oote the

new coan% iagec+ In(estent in new s%ste and dist!i$ution netwo!:+

Contingent Liability " ossi$le o$ligation that a!ises

f!o ast e(ent and whose e#istence will $e con/!ed

onl% $% the occu!!ence o! nonoccu!!ence of one o! o!e

unce!tain futu!e e(ents not wholl% within the cont!ol of

the entit%+ It is not !ecogni6ed since it is not !o$a$le that

an out;ow of !esou!ces e$od%ing econoic $ene/ts will

$e !e,ui!ed to settle the o$ligation o! the aount of the

o$ligation cannot $e easu!ed !elia$l%+ )PAS 23' a! 9*

Treatment !) !nt"n*ent ("a0"("t&:

Contingent liabilityshall not $e !ecogni6ed in the face

of the /nancial stateents $ut shall $e disclosed onl%+ The

!e,ui!ed disclosu!es a!e-

a+ B!ief desc!ition of the natu!e of the contingent

lia$ilit%+$+ An estiate of its /nancial e8ects

c+ An indication of the unce!tainties that e#ist+d+ Possi$ilit% of an% !ei$u!seent+

If contingent lia$ilit% is remote' no isclosure is necessar+

SPECIFIC PROVISIONS:

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I2 Prem"ums 1 a!e a!ticles of (alue such as to%s' dishes'

sil(e!wa!e' and othe! goods and in soe cases cash

a%ents gi(en to custoe!s as !esult of ast sales o!

sales !ootion acti(ities+

A+ The accounting !ocedu!es fo! the ac,uisition of

!eius and !ecognition of the !eiu lia$ilit%

a!e as follows-

When the !eius a!e u!chased-

P!eius ## Cash ##

When the !eius a!e dist!i$uted to

custoe!s-

P!eiu e#ense ## P!eius ##

At the end of the %ea!' if !eius a!e still

outstanding-

P!eiu e#ense ##

Estiated !eiu lia$ilit% ##

B+ Financial stateent classi/cation

P!eius " cu!!ent asset

Estiated !eiu lia$ilit% " cu!!ent lia$ilit%

P!eiu e#ense " dist!i$ution cost

II2 arrant"es 4 is a te! of a cont!act $etween the

$u%e! and the selle! gi(ing the $u%e! additional !otection

on the ,ualit% of the !oduct+ This gi(es the selle! o!

anufactu!e! a !esonsi$ilit% to !eai! o! !elace the

!oduct if it is daaged o! fault%+

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A+ Two a!oaches in accounting wa!!anties12Arua( A..r!ah" atches costs with !e(enue'

at the tie of sale' a lia$ilit% fo! wa!!ant% cost a!ises

and is accounted fo!+ The estiated wa!!ant% cost is

!eco!ded as follows-

Wa!!ant% E#ense ##

Estiated Wa!!ant% Lia$ilit% ##

Ent!% fo! actual wa!!ant% cost su$se,uentl% incu!!ed

and aid

Estiated Wa!!ant% Lia$ilit% ## Cash ##

N!te: an+ ierence bet,een estimate an actual

cost is a c%ange in estimate .f t%e actual cost /

estimate cost t%e ierence is c%arge to ,arrant+

e#pense

Wa!!ant% E#ense ## Estiated Wa!!ant% Lia$ilit% ##

If actual cost is G estiated cost' the di8e!ence is anad7ustent to wa!!ant% e#ense as follows-

Estiated Wa!!ant% Lia$ilit% ##

Wa!!ant% E#ense ##

$2E6.ense as "nurre# A..r!ah" wa!!ant% costs

a!e iediatel% e#ensed+

B+ Sa(e !) 7arrant&" soeties wa!!anties a!e sold

sea!atel% f!o the !oduct+ The aount !ecei(ed

f!o the sale of the e#tended wa!!ant% is !ecogni6ed

initiall% as defe!!ed !e(enue and su$se,uentl%

ao!ti6ed using st!aight line o(e! the life of the

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wa!!ant% cont!act+ The sale of the !oduct with the

usual wa!!ant% is !eco!ded sea!atel% f!o the sale

of the e#tended wa!!ant%+

III2 Cust!mer (!&a(t& .r!*ram is gene!all% designed to

!ewa!d custoe!s fo! ast u!chases and to !o(ide the

with incenti(es to a:e fu!the! u!chases

A2 Re!*n"t"!n an# measurement

IFRIC 92' an entit% shall account fo! the !ewa!d

c!edits as a @separatel+ component of t%e initial

sale transaction

The fai! (alue of the conside!ation !ecei(ed with

!esect to the initial sale shall $e allocated

$etween the awa!d c!edits and the sale+

The conside!ation allocated to the awa!d c!edits

is easu!ed at fai! (alue+

Su$se,uent !ecognition of the aount of awa!d

c!edits deends on the following-9+ The ent"t& su..("es the a7ar#s "tse()"

aount of !e(enue !ecogni6ed shall $e

$ased on the nu$e! of awa!d c!edits that

ha(e $een !edeeed !elati(e to the total

nu$e! e#ected to $e !edeeed+$2 A th"r# .art& su..("es the a7ar#s "

!e(enue is !ecogni6ed at the oint of sale+

Accounting t!eatent deends if the entit%

is the !incial o! the agent+a2 Pr"n".a( !((et!r " the aount

of !e(enue is e,ual to the net aount!etained on its own account+

)Conside!ation allocated (s aount

a%a$le to the thi!d a!t%*02 A*ent !) the th"r# .art& " the

aount of !e(enue is e,ual to the net

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aount !etained on its own account+

)Conside!ation allocated (s aount

a%a$le to the thi!d a!t%*

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PROVISION AND CONTINGENT LIABILIT9 IAS3,;

O0


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>e& #e?n"t"!ns @IAS 3,21=

Pr!%"s"!n:a lia$ilit% of uncertaintiing o! aount+L"a0"("t&:

present obligationas a !esult of ast e(ents settleent is e#ected to !esult in an out4o, of

!esou!ces )a%ent*

C!nt"n*ent ("a0"("t&: a possible obligation deending on whethe! soe

unce!tain futu!e e(ent occu!s' o!

apresent obligation $ut a%ent is not probableo!the aount cannot $e easu!ed !elia$l%

C!nt"n*ent asset: apossible assetthat a!ises f!o ast e(ents' and whose e#istence will $e con/!ed onl% $% the

occu!!ence o! non1occu!!ence of one o! o!eunce!tain futu!e e(ents not wholl% within thecont!ol of the entit%+

Re!*n"t"!n !) a .r!%"s"!nAn entit+ must recognise a provision if an onl+ if HIAS23+9


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A const!ucti(e o$ligation a!ises if ast !actice c!eates a(alid e#ectation on the a!t of a thi!d a!t%' fo! e#ale'a !etail sto!e that has a long1standing olic% of allowingcustoe!s to !etu!n e!chandise within' sa%' a 21da%e!iod+ HIAS 23+9

A ossi$le o$ligation )a contingent lia$ilit%* is isclose$ut not accrue+ Dowe(e!' disclosu!e is not !e,ui!ed ifa%ent is !eote+ HIAS 23+>=

In !a!e cases' fo! e#ale in a lawsuit' it a% not $e clea!whethe! an entit% has a !esent o$ligation+ In those cases'a ast e(ent is deeed to gi(e !ise to a !esent o$ligationif' ta:ing account of all a(aila$le e(idence' it is o!e li:el%

than not that a !esent o$ligation e#ists at the $alancesheet date+ A !o(ision should $e !ecogni6ed fo! that!esent o$ligation if the othe! !ecognition c!ite!iadesc!i$ed a$o(e a!e et+ If it is o!e li:el% than not thatno !esent o$ligation e#ists' the entit% should disclose acontingent lia$ilit%' unless the ossi$ilit% of an out;ow of!esou!ces is !eote+ HIAS 23+95

Measurement !) .r!%"s"!ns

The aount !ecogni6ed as a !o(ision should $e the $estestiate of the e#enditu!e !e,ui!ed to settle the !esento$ligation at the $alance sheet date' that is' the aountthat an entit% would !ationall% a% to settle the o$ligationat the $alance sheet date o! to t!ansfe! it to a thi!d a!t%+HIAS 23+2= This eans-

P!o(isions fo! one1o8 e(ents )!est!uctu!ing'en(i!onental clean1u' settleent of a lawsuit*

a!e easu!ed at the ost li:el% aount+ HIAS23+


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cu!!ent a!:et assessents of the tie (alue ofone% and the !is:s seci/c to the lia$ilit%+ HIAS23+


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ain featu!es to those a8ected+ A Boa!ddecision is insu.cient HIAS 23+34'Aendi# C' E#ales 5A & 5B

5arrant+

When an o$ligating e(ent occu!s )sale of!oduct with a wa!!ant% and !o$a$le

wa!!ant% clais will $e ade* HAendi#C' E#ale 9

Lancontamination

A !o(ision is !ecognised ascontaination occu!s fo! an% legalo$ligations of clean u' o! fo!const!ucti(e o$ligations if the coan%Jsu$lished olic% is to clean u e(en ifthe!e is no legal !e,ui!eent to do so)ast e(ent is the containation and

u$lic e#ectation c!eated $% thecoan%Js olic%* HAendi# C' E#ales4B

$ustomerrefuns

Recognise a !o(ision if the entit%Jsesta$lished olic% is to gi(e !efunds )aste(ent is the sale of the !oduct togethe!with the custoe!Js e#ectation' at tieof u!chase' that a !efund would $ea(aila$le* HAendi# C' E#ale

$!A 3rm muststa trainingfor recent

No !o(ision is !ecognised )the!e is noo$ligation to !o(ide the t!aining'!ecognise a lia$ilit% if and when the

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c%anges in ta#la,

!et!aining occu!s* HAendi# C' E#ale3

1a6or over%aulor repairs

No !o(ision is !ecognised )no o$ligation*HAendi# C' E#ale 99

'nerous (loss-

making)contract

Recognise a !o(ision HIAS 23+==

Futureoperatinglosses

No !o(ision is !ecognised )no lia$ilit%*HIAS 23+=2

Restrutur"n*sA restructuring isHIAS 23+3

sale o! te!ination of a line of $usiness closu!e of $usiness locations changes in anageent st!uctu!e fundaental !eo!ganisations+

Restructuring provisions s%oul be recognise as follo,sHIAS 23+34

Sa(e !) !.erat"!n: !ecognise a !o(ision onl%afte! a $inding sale ag!eeent HIAS 23+3>

C(!sure !r re!r*an"sat"!n:!ecognise a !o(isiononl% afte! a detailed fo!al lan is adoted and hassta!ted $eing ileented' o! announced to thosea8ected+ A $oa!d decision of itself is insu.cient+

Future !.erat"n* (!sses: !o(isions a!e not!ecognised fo! futu!e oe!ating losses' e(en in a!est!uctu!ing

Restrutur"n* .r!%"s"!n !n a'u"s"t"!n:!ecognise a !o(ision onl% if the!e is an o$ligation

at ac,uisition date HIFRS 2+99

Rest!uctu!ing !o(isions should include onl% di!ecte#enditu!es necessa!il% entailed $% the !est!uctu!ing'not costs that associated with the ongoing acti(ities of theentit%+ HIAS 23+>

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hat "s the #e0"t entr&When a !o(ision )lia$ilit%* is !ecognised' the de$it ent!%fo! a !o(ision is not alwa%s an e#ense+ Soeties the!o(ision a% fo! a!t of the cost of the asset+

E#ales- included in the cost of in(ento!ies' o! ano$ligation fo! en(i!onental cleanu when a new ine isoened o! an o8sho!e oil !ig is installed+ HIAS 23+>

Use !) .r!%"s"!nsP!o(isions should onl% $e used fo! the u!ose fo! whichthe% we!e o!iginall% !ecognised+ The% should $e !e(iewedat each $alance sheet date and ad7usted to !e;ect the

cu!!ent $est estiate+ If it is no longer probable that anout;ow of !esou!ces will $e !e,ui!ed to settle theo$ligation' the !o(ision should $e reverse+ HIAS 23+=9

C!nt"n*ent ("a0"("t"esSince the!e is coon g!ound as !ega!ds lia$ilities thata!e unce!tain' IAS 23 also deals with contingencies+ It!e,ui!es that entities should not !ecogni6e contingentlia$ilities " $ut should disclose the' unless the ossi$ilit%

of an out;ow of econoic !esou!ces is !eote+ HIAS 23+>=

C!nt"n*ent assetsContingent assets should not $e !ecognised " $ut should$e disclosed whe!e an in;ow of econoic $ene/ts is!o$a$le+ When the !ealisation of incoe is (i!tuall%ce!tain' then the !elated asset is not a contingent assetand its !ecognition is a!o!iate+ HIAS 23+29125

D"s(!suresReconciliation fo! each class of !o(ision- HIAS 23+>


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unwinding of the discount' o! changes in discount!ate

closing $alance

A !io! %ea! !econciliation is not !e,ui!ed+ HIAS 23+>


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d+ The !oo!tion of the fai! (alue of the awa!d

c!edits !elati(e to the total conside!ation f!o

initial sale of the goods


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Dow would the defe!!ed !e(enue account $e

a8ected $% the !edetion and non1!edetion of

ce!ti/cates' !esecti(el%Ma+ ec!ease and no e8ect$+ ec!ease and dec!ease

c+ No e8ect and no e8ectd+ No e8ect and dec!ease

3+ A !etail sto!e !ecei(ed cash and issued a gift

ce!ti/cate that is !edeea$le in e!chandise+

When the gift ce!ti/cate was issueda+ efe!!ed !e(enue account should $e dec!eased$+ efe!!ed !e(enue account should $e inc!easedc+ Re(enue account should $e dec!easedd+ Re(enue account should $e inc!eased

>+ aga6ine su$sc!ition collected in ad(ance a!e

t!eated asa+ A cont!a account to aga6ine su$sc!ition

!ecei(a$le$+ efe!!ed !e(enue in the lia$ilit% sectionc+ efe!!ed !e(enue in the sha!eholde!s e,uit%

sectiond+ aga6ine su$sc!ition !efund in the incoe

stateent in the e!iod collected

?+ When an entit% !ecei(ed an ad(ance a%ent fo!

secial o!de! goods that a!e to $e anufactu!e and

deli(e!ed within si# onths' the ad(ance a%ents

shall $e !eo!ted as

a+ efe!!ed cha!ge c+ Cu!!ent lia$ilit%

$+ Cont!a asset account d+ Noncu!!ent lia$ilit%

9+An entit% is a !etaile! of hoe aliances and o8e!s

a se!(ice cont!act on each aliance sold+ The

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entit% sells aliances on installent cont!acts $ut

all se!(ice cont!acts ust $e aid in full at the tie

of sale+ Collections !ecei(ed fo! se!(ice cont!acts

shall $e !eco!ded as an inc!ease ina+ efe!!ed !e(enue account$+ Sales cont!acts !ecei(a$le (aluation accountc+ Sha!eholde!s e,uit% (aluation accountd+ Se!(ice !e(enue account

99+nde! a !o%alt% ag!eeent with othe! entit%' an

entit% will !ecei(e !o%alties f!o the assignent of

a atent fo! fou! %ea!s+ The !o%alties !ecei(ed in

ad(ance shall $e !eo!ted as !e(enue

a+ In the e!iod !ecei(ed$+ In the e!iod ea!nedc+ E(enl% o(e! the life of the !o%alt% ag!eeentsd+ At the date of the !o%alt% ag!eeent

94+In Oune of the cu!!ent %ea!' an entit% sold

!efunda$le e!chandise couons+ The entit%

!ecei(ed a ce!tain aount of each couon

!edeea$le f!o Oul% 9 to ece$e! 29 of the

cu!!ent %ea!' fo! e!chandise with a ce!tain !etail!ice+ At Oune 2 of the cu!!ent %ea!' how should

the entit% !eo!t these couon t!ansactionsMa+ nea!ned !e(enue at the e!chandise !etail

!ice$+ nea!ned !e(enue at the cash !ecei(edc+ Re(enue at the e!chandises !etail !iced+ Re(enue at the cash !ecei(ed

92+Dow would the !oceeds !ecei(ed f!o the ad(ance

sale of non!efunda$le tic:ets fo! a theat!ical

e!fo!ance $e !eo!ted in the selle!s /nancial

stateents $efo!e the e!fo!anceMa+ Re(enue fo! the enti!e !oceeds

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$+ Re(enue to the e#tent of !elated costs

e#endedc+ nea!ned !e(enue to the e#tent of !elated costs

e#endedd+ nea!ned !e(enue fo! the enti!e !oceeds

9


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9=+Estiated lia$ilities a!e disclosed in /nancialstateents $%a+ Note to the /nancial stateents$+ Showing the aount aong the lia$ilities $ut

not e#tending to the lia$ilit% total

c+ An a!o!iation of !etained ea!ningsd+ A!o!iatel% classif%ing the as !egula!

lia$ilities in the stateent of /nancial osition

93+nea!ned !ent !e(enue would no!all% aea! inthe stateent of /nancial osition as

a+ Plant asset $+ Cu!!ent lia$ilit%

c+ Noncu!!ent lia$ilit% d+ Cu!!ent asset

9>+Rent !e(enue collected one %ea! in ad(ance should$e !eo!ted asa+ Re(enue in the %ea! collected$+ Cu!!ent lia$ilit%c+ Sea!ate ite of sha!eholde!s e,uit%d+ Acc!ued lia$ilit%

9?+An entit% sells fu!naces that include a th!ee1%ea!wa!!ant%+ The entit% can cont!act with a thi!d a!t%to !o(ide these wa!!ant% se!(ices+ The entit%elects the fai! (alue otion fo! !eo!ting /nanciallia$ilities+ At what aount should the entit% !eo!tthe wa!!ant% lia$ilit%Ma+ The cost of e#ected wa!!ant% se!(ices$+ The !esent (alue of e#ected wa!!ant% costsc+ The fai! (alue of the cont!act to settle the

wa!!ant% se!(ices

d+ The fai! (alue of the cont!act less the cost to!o(ide the se!(ices+

4+The acc!ual a!oach in accounting fo! !oductwa!!ant% costa+ Is !e,ui!ed fo! incoe ta# u!oses

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$+ Is f!e,uentl% 7usti/ed on the $asis of e#edienc%when wa!!ant% cost is iate!ial+

c+ Finds the e#ense account $eing cha!ged whenthe selle! e!fo!s in coliance with thewa!!ant%+

d+ Re!esents acceted !actice and should $eused whene(e! the wa!!ant% is an integ!al andinsea!a$le a!t of the sale+

49+Which of the following $est desc!i$es the acc!uala!oach of accounting fo! wa!!ant% costMa+ E#ensed when aid$+ E#ensed when wa!!ant% clais a!e ce!tainc+ E#ensed $ased on estiate in %ea! of sale

d+ E#ensed when incu!!ed

44+Which of the following desc!i$es the e#ensea!oach of accounting fo! wa!!ant% costMa+ E#ensed $ased in estiate in %ea! of sale+$+ E#ensed when lia$ilit% is acc!ued+c+ E#ensed when wa!!ant% clais a!e ce!tain+d+ E#ensed when incu!!ed+

42+When an entit% has a continuing olic% ofgua!anteeing new !oducts against defects fo!th!ee %ea!s' the lia$ilit% a!ising f!o the wa!!ant%a+ Should $e !eo!ted as noncu!!ent$+ Should $e !eco!ded as cu!!entc+ Should $e !eo!ted as a!t cu!!ent and a!t

noncu!!ent

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a+ A ossi$le o$ligation a!ising f!o ast e(ent+$+ A lia$ilit% of unce!tain tiing o! aountc+ A lia$ilit% which cannot $e easil% easu!edd+ An o$ligation to t!ansfe! funds to an entit%+

4=+A !o(ision shall $e !ecogni6ed as lia$ilit% whenI+ An entit% has a !esent o$ligation as a !esult of

a ast e(ent+II+ It is !o$a$le that an out;ow of !esou!ces

e$od%ing econoic $ene/ts will $e !e,ui!ed tosettle the o$ligation+

III+ The aount of the o$ligation can $e easu!ed!elia$l%a+ I and II onl%

$+ I and III onl%c+ II and III onl%d+ I' II' and III

43+A const!ucti(e o$ligation is an o$ligationI+ That is de!i(ed f!o a entit%s action that the

entit% will accet ce!tain !esonsi$ilities$ecause of ast !actice' u$lished olic% o!cu!!ent stateent+

II+ The entit% has c!eated a (alid e#ectation inothe! a!ties that it will discha!ge those!esonsi$ilitiesa+ I onl%$+ II onl%c+ Both I and IId+ Ethe! I o! II

4>+It is an e(ent that c!eates a legal o! const!ucti(eo$ligation $ecause has no othe! !ealistic alte!nati(e$ut to settle the o$ligation+

a+ K$ligation e(ent c+ Su$se,uent e(ent

$+ Past e(ent d+ Cu!!ent e(ent

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4?+An out;ow of !esou!ces e$od%ing econoic$ene/ts is !ega!ded as @!o$a$le whena+ The !o$a$ilit% that the e(ent will occu! is

g!eate! than the !o$a$ilit% that the e(ent willnot

$+ The !o$a$ilit% that the e(ent will not occu! isg!eate! than the !o$a$ilit% that the e(ent willoccu!+

c+ The !o$a$ilit% that the e(ent will occu! is thesae as the !o$a$ilit% that the e(ent will notoccu!+

d+ The !o$a$ilit% that the e(ent will occu! is ?

2+What aount is !ecogni6ed as !o(isionM

a+ Best estiate of the e#enditu!e$+ iniu of the !angec+ a#iu of the !anged+ idoint of the !ange

29+Whe!e the!e is a continuous !ange of ossi$leoutcoes' and each oint in that !ange is as li:el%as an% othe!' the !ange to $e used is thea+ iniu

$+ a#iuc+ idointd+ Su of the iniu and a#iu

24+When the !o(ision in(ol(es a la!ge oulation ofites' the estiate of the aounta+ Re;ects the weighing of all ossi$le outcoes

$% thei! associated !o$a$ilities+$+ Is dete!ined as the indi(idual ost li:el%

outcoec+ a% $e the indi(idual ost li:el% ad7usted fo!

the e8ect of othe! ossi$le outcoe+d+ idoint of the ossi$le outcoes

22+When the !o(ision a!ises f!o a single o$ligation'the estiate of the aount

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a+ Re;ects the weighing of all ossi$le outcoes$% thei! associated !o$a$ilities+

$+ Is dete!ined as the indi(idual ost li:el%outcoes

c+ Is the indi(idual ost li:el% outcoe ad7usted

fo! the e8ect of othe! ossi$le outcoesd+ idoint of the ossi$le outcoes

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23+A !esent o$ligation that is !o$a$le and fo! whichthe aount can $e !elia$l% easu!ed shalla+ Not $e acc!ued $ut shall $e disclosed in the

notes to the /nancial stateents+$+ Be acc!ued $% de$iting an a!o!iated !etained

ea!nings account and c!editing a lia$ilit%account+

c+ Be acc!ued $% de$iting an e#ense account andc!editing an a!o!iated !etained ea!ningsaccount+

d+ Be acc!ued $% de$iting an e#ense account andc!editing a lia$ilit% account+

2>+An ite that is not a contingent lia$ilit% is

a+ P!eiu o8e! to custoe!s fo! la$els o! $o#tos$+ Accoodation endo!seent on custoe! notec+ Additional coensation that a% $e a%a$le

on a disute now $eing a!$it!ated+d+ Pending lawsuit

2?+Contingent assets a!e usuall% !ecogni6ed whena+ Reali6ed

$+ Kccu!!ence is !easona$l% ossi$le and theaount can $e !elia$l% easu!ed+c+ Kccu!!ence is !o$a$le and the aount can $e

!elia$l% easu!ed+ The aount can $e !elia$l% easu!ed


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a+ Das a ost !o$a$le (alue of 6e!o $ut a%!e,ui!e a a%ent if a gi(en futu!e e(entoccu!s+

$+ e/nitel% e#ists as a lia$ilit% $ut the aount o!due date is indete!inate+

c+ Is coonl% associated with loss ca!!% fo!wa!dd+ Is not disclosed in the /nancial stateents

5+Which of the following should $e disclosed in the/nancial stateents as a contingent lia$ilit%Ma+ The entit% has acceted lia$ilit% !io! to the

%ea!1end fo! unfai! disissal of an elo%eeand is to a% daages+

$+ The entit% has !ecei(ed a lette! f!o sulie!

colaining a$out an old unaid in(oicec+ The entit% is in(ol(ed in a legal case which ita% $e ossi$le+

d+ The entit% has not %et aid ce!tain clais unde!!oduct wa!!anties

FAR Liabilities

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