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RELEVANT TO ACCA QUALIFICATION PAPER P2ProvisionsThe Paper P2 examiner often features one question per exam that focuses on a single International Financial Reporting Standard (IFRS). But be warned – while these questions take their lead from a single IFRS, the examiner also brings in other issues from other IFRS.The December 2010 exam included a share-based payment question called Margie. Before that, in the December 2009 exam, there was a question on impairment and, in June 2009, another on financial instruments.In the last exam, the Margie question was not just about share-based payment. It also included financial instruments, fair value and simple share issues. Also, the question was highly analytical. There were few marks for regurgitation of knowledge. The bulk of the marks were reserved for analysis.So to give you an idea of how these questions work, and to revisit a subject that has not been the subject of focus for a while, I am going to resurrect an old Paper P2 question called Satellite. It is a focus question that looks at provisions, but also has plenty of other accounting issues to consider. Of course, I have had to change the question slightly to bring it up to date.The purpose of this article is to give you a feel as to how to tackle such questions.SatelliteSatellite, a public limited company, has produced draft consolidated financial statements as at 30 November. The group accountant has asked your advice on several matters. These issues are set out below and have not been dealt with in the draft group financial statements:1 Satellite has buildings under an operating lease. A requirement of theoperating lease for the corporate offices is that the asset is returned ingood condition. The operating lease was signed in the current year andlasts for six years. Satellite intends to refurbish the building in six years’ time at a cost of $6m in order to meet the requirements of the lease.This amount includes the cost of renovating the exterior of the buildingand is based on current price levels. Currently, there is evidence that due to severe and exceptional weather damage the company will have tospend $1.2m in the next year on having the exterior of the buildingrenovated. The company feels that this expenditure will reduce therefurbishment cost at the end of the lease by an equivalent amount.There is no provision for the above expenditure in the financialstatements. (3 marks)2 An 80% owned subsidiary company, Universe, has a leasehold property(historical cost $8m, acquired at the year start). It has been modified to include a sports facility for the employees. Under the terms of the lease, the warehouse must be restored to its original state when the leaseexpires in 10 years’ time or earlier termination. The present value of the costs of reinstatement are likely to be $2m measured at the year startand the directors wish to provide for $200,000 per annum for 10 years.The lease was signed and operated from the current year start and themodifications occurred immediately after. The directors estimate thatthe lease has a recoverable value of $9.5m at 30 November year-end and have not provided for any of the above amounts. (9 marks)3 Additionally, Satellite owns buildings at a carrying value of $20m, whichwill require repair expenditure of approximately $6m over the next fiveyears. No provision has been made for this amount in the financialstatements and depreciation is charged on leasehold buildings at 10%per annum and on owned buildings at 5% per annum, on the straight-line basis. (3 marks)4 Universe has developed a database during the year to 30 November andit is included in intangible non-current assets at a cost of $3m. The asset comprises the internal and external costs of developing the database.The cost of such intangible assets is amortised over five years and oneyear’s amortisation has been charged. The database is used to producea technical accounting manual, which is used by the whole group andsold to other parties. Net revenue of $2m is expected from sales of themanual over its four-year life. It has quickly become a market leader inthis field. Any costs of maintaining the database and the technicalmanual are written off as incurred. The technical manual requiressubstantial revision every four years. Therefore, Universe is consideringproviding for the cost of revision. (2 marks)5 Satellite purchased a wholly owned subsidiary company, Globe, on 1December, at the prior year start. The vendors commenced a legal action on 31 March during the current year over the amount of the purchaseconsideration, which was based on the performance of the subsidiary. An amount had been paid to the vendors and included in the calculation ofgoodwill but the vendors disputed the amount of this payment. The court made a decision on 30 November at the current year-end that requiresSatellite to pay an additional $8m to the vendors within three months.The directors do not know how to treat the additional purchaseconsideration and have not accounted for the item. (3 marks)Required(a) Discuss the recognition criteria for the recognition of a provision (IAS37). (5 marks)(b) Discuss how the above five issues should be dealt with in the groupfinancial statements of Satellite. (20 marks)(Total: 25 marks)Possible answerThe marking guide was based on the usual one mark per idea well expressed. So the following would look good on a marker’s screen.(a)ThreeThere are three recognition criteria.Reasonably reliable estimateIt must be possible to make a reasonably reliable estimate of the outflow that will result from the obligation before a provision is permitted.ObligationThere must be a present legal or constructive obligation at the year-end before a provision is permitted.TransferThere must be an expectation that economic benefit will flow out in the future as a result of the obligation.CommentFrankly, the IAS argues it is always possible to estimate the outflow and it is very rare for a transfer out to be avoidable. So, in practice, the accountant can focus purely on the obligation criteria.FrameworkPerhaps it should be noted how the above closely follows the focus of the framework on assets and liabilities. The framework also defines a liability in terms of present obligations.(b)1 Operating leaseActually, it is irrelevant whether the above is operating or finance lease in the context of analysing related provisions. Either type of lease creates an obligation.Present obligationBut the trick here is to spot the present obligation. Satellite does have a present obligation for the damage done during the tenure ($1.2m) but not for the damage that might be done in the future (maybe $4.8m).ConclusionSo Satellite should provide $1.2m and should probably recognise the charge to the p/l as super-exceptional on the face of the income statement given its unusual nature.2 UniverseFirst we must eye this problem form the perspective of the subsidiary. It is the subsidiary that will be putting through the double entry. Then we can look at the effect on the group.ModificationThe key term in this paragraph is ‘modify’. We can see that Universe already has made the modifications and therefore has a present obligation as a result of this past obliging event.ProvisionSo a provision is required for the cost of restoration. The provision is required at the point of modification. The modification occurred at the year start. MeasurementHowever, the restoration will not take place until the end of the lease; so the time value of money must be considered. But we need to be careful here, as the $2m is already discounted.Double entrySo the year start double entry is:Dr Non-current asset $2mCr Provision $2mNon-current assetIn fact, the above non-current asset entry goes on top of the initial premium: Premium $8mRestoration $2m_____Initial cost $10mDepreciationThen, of course, the above is depreciated over its life, which is 10 years.Depreciation double entryThis is the same every year:Dr i/s $1mCr NCA $1mUnwindingAnd, of course, quite separately the liability unwinds. The scenario does not tell us the discount rate, so I have assumed 10%.Unwinding double entryThis snowballs every year (grows exponentially), but the first year journal would be as follows:Dr i/s $0.2mCr Prov ($2m)(10%) $0.2mImpairment testThere is even data for an impairment test. However, there is no impairment as the carrying value of the asset at the year-end ($9m) is less than the recoverable value ($9.5m).Group effectThe above double entry will be accommodated by the sub. However, because this is a partially owned sub, the group/non-controlling interest effect will be 80%/20%.3 RepairsThere appears to be no obligation for the repairs. Just an intent to repair sometime in the future.ConclusionSo I suggest there can be no provision for the repairs.DepreciationBuildings should be depreciated over their useful lives regardless of being owned or otherwise.4 IntangibleAn intangible is recognised if it is purchased. Also, development is recognised if it is recoverable. It sounds like the external costs are the former and the internal costs are the latter.ConclusionSo it appears to be reasonable to capitalise and depreciate the asset. However, I would advise Satellite to adjust the life down to four years, as that appears to be more realistic. Also, there is no obligation to revise. So no provision is possible.5 GoodwillClearly, if Satellite had predicted the extra $8m, it would have put it in the consideration and the acquisition goodwill would have been higher.Prior period adjustment (PPA)But the only way to adjust last year’s goodwill is via a PPA (restatement). This is only permissible if the $8m is a material error. But to me it sounds like a change in an estimate. So the $8m will simply have to be costed to the i/s.IFRS 3IFRS 3 supports this view, by giving a 12 months’ limit on playing with goodwill after acquisition.ConclusionI hope the above gave you a feel for how you can think about addressing a focus question and how to address wider issues so that you can broaden your analysis.Martin Jones is a lecturer at the London School of Business and Finance。
provisions的组词-回复Question: [provisions组词]Answer:Title: The Importance of Provisions: Ensuring Survival and ProsperityIntroduction (150 words):Provisions are essential supplies or actions necessary for the well-being and sustenance of individuals, communities, and societies. From food and water to laws and resources, provisions ensure survival and prosperity in various aspects of life. In this article, we will explore the significance of provisions in areas such as social security, environmental sustainability, economic stability, and personal well-being. By understanding the importance of provisions and how they impact our lives, we can work towards creating a sustainable and prosperous future for all.Body:1. Provisions for Social Security (400 words):Social security refers to the measures put in place to ensure the welfare and protection of citizens. It includes healthcare, education, housing, unemployment benefits, and elderly care, among others. Provisioning for social security is crucial for fostering a fair and just society. Without proper provisions, individuals may suffer from poverty, inequality, and lack of access to basic services. By guaranteeing these provisions, governments can promote equal opportunities, enhance public safety, and reduce social unrest.2. Provisions for Environmental Sustainability (400 words):Provisions for environmental sustainability involve actions taken to preserve and maintain natural resources, protect biodiversity, and combat climate change. These provisions include environmentalregulations, renewable energy sources, conservation initiatives, and waste management systems. Protecting our environment is essential for the well-being of current and future generations. By ensuring adequate provisions, we can reduce pollution, mitigate the impact of climate change, and preserve the earth's ecosystems and natural beauty.3. Provisions for Economic Stability (400 words):Provisions for economic stability encompass measures that promote a balanced and prosperous economy. These provisions include fiscal policies, trade agreements, investment in infrastructure, and measures to support small and medium-sized enterprises. By having effective provisions, societies can mitigate economic crises, ensure fair competition, and provide job opportunities for their citizens. Robust economic provisions also contribute to poverty reduction, improved living standards, and sustainable development.4. Provisions for Personal Well-being (400 words):Provisions for personal well-being involve actions taken to support individuals' physical and mental health, personal development, and overall quality of life. These provisions comprise healthcare services, access to education and cultural opportunities, social support systems, and recreational facilities. Adequate provisions for personal well-being enable individuals to lead fulfilling lives, realize their potential, and contribute positively to society. These provisions are crucial for fostering a society that values and supports the well-being of all its members.Conclusion (150 words):Provisions, encompassing various aspects of life such as social security, environmental sustainability, economic stability, and personal well-being, are essential for the survival and prosperity of individuals and communities. By ensuring access to vital resources and services, provisions support the overall well-being of society and contribute to a fair, just, and sustainable future. It isimperative for governments, organizations, and individuals to prioritize and advocate for effective provisions in order to address societal challenges, achieve long-term prosperity, and enhance the quality of life for all. Through collective efforts, society can create a world where provisions are available to all, ensuring a brighter and more prosperous future.。
国际会计准则2003年9月19日国际会计准则(IAS)目录Framework for the Preparation and Presentation of Financial Statements (3)Preface ...................................................................... .............................................................................. . (24)Procedure and Objective of IASB ......................................................................... (27)IAS 1: Presentation of Financial Statements.................................................................... (33)IAS 2: Inventories................................................................... .............................................................................. .55IAS 7: Cash Flow Statements ................................................................... (62)IAS 8: Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies (73)IAS 10: Events After the Balance Sheet Date.......................................................................... (82)IAS 11: Construction Contracts .................................................................... .. (93)IAS 12: Income Taxes ........................................................................ (101)IAS 14: Segment Reporting .................................................................... (134)IAS 15: Information Reflecting the Effects of Changing Prices (1)50IAS 16: Property, Plant and Equipment..................................................................... . (155)IAS 17: Leases........................................................................ (169)IAS 18: Revenue ...................................................................... . (18)IAS 19: Employee Benefits...................................................................... (188)IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (227)IAS 21: The Effects of Changes in Foreign Exchange Rates ........................................................................ . (233)IAS 22: Business Combinations.................................................................. .. (244)IAS 23: Borrowing Costs ........................................................................ (270)IAS 24: Related Party Disclosures .................................................................. . (275)IAS 26: Accounting and Reporting by Retirement Benefit Plans (280)IAS 27: Consolidated Financial Statements ................................................................... (288)IAS 28: Investments in Associates ................................................................... . (294)IAS 29: Financial Reporting in Hyperinflationary Economies .................................................................... . (301)IAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions (308)IAS 31: Financial Reporting of Interests in Joint Ventures ..................................................................... (319)IAS 32: Financial Instruments: Disclosure and Presentation.................................................................. (328)IAS 33: Earnings per Share ........................................................................ .. (351)IAS 34: Interim Financial Reporting..................................................................... (365)IAS 35: Discontinuing Operations ................................................................... (376)IAS 36: Impairment of Assets........................................................................ .. (385)IAS 37: Provisions, Contingent Liabilities and Contingent Assets (410)IAS 38: Intangible Assets ....................................................................... . (426)IAS 39: Financial Instruments: Recognition and Measurement................................................................... (452)IAS 40: InvestmentProperty...................................................................... .. (504)IAS 41: Agriculture .................................................................. (520)Framework for the Preparation and Presentation of Financial StatementsFramework for the Preparation and Presentation of Financial Statements架The IASB Framework is a conceptual accounting framework that sets out the concepts that underlie thepreparation and presentation of financial statements for external users. It was approved in 1989. The IASBFramework assists the IASB:.in the development of future International Accounting Standards and in its review of existingInternational Accounting Standards; and.in promoting the harmonisation of regulations, accounting standards and procedures relating to thepresentation of financial statements by providing a basis for reducing the number of alternativeaccounting treatments permitted by International Accounting Standards.In addition, the Framework may assist:.preparers of financial statements in applying International Accounting Standards and in dealing withtopics that have yet to form the subject of an International Accounting Standard;.auditors in forming an opinion as to whether financial statements conform with InternationalAccounting Standards;.users of financial statements in interpreting the information contained in financial statements preparedin conformity with International Accounting Standards; and.those who are interested in the work of IASB, providing them with information about its approach to theformulation of accounting standards.The Framework is not an International Accounting Standard and does not define standards for any particularmeasurement or disclosure issue.In a limited number of cases there may be a conflict between the Framework and a requirement within anInternational Accounting Standard. In those cases where there is a conflict, the requirements of the InternationalAccounting Standard prevail over those of the Framework.世界上许多企业都编制并且向外部使用者呈报财务报表。
provision会计中英语意思（中英文实用版）**English Version:**The term "provision" in accounting holds a significant role in financial reporting and risk management.In English, a provision refers to an amount set aside or recognized as an obligation or an expected loss that will likely require a future outflow of economic benefits.It is an accounting entry that records a liability, which may not be precisely quantifiable at the time of the initial recognition but is acknowledged due to a present obligation from past events, a legal or constructive obligation, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.Provisions are made for various reasons, such as bad debt expenses, inventory obsolescence, warranty claims, environmental cleanup costs, or legal disputes.These are not actual expenses yet but are estimated based on past experiences and future expectations to ensure a more accurate reflection of a company"s financial position.**Chinese Version:**在会计学中，“provision”一词在财务报告和风险管理中扮演着重要角色。
第一课财务会计导读Glossaryaccrual basis 权责发生制Asset资产balance sheet资产负债表capital adequacy ratio 资本充足率cash basis 收付实现制cash flow statement现金流量表double entry method 复式记账法Expenses费用Fair value公允价值financial reports 财务报告going concern 持续经营guarantee 担保Historical cost历史成本Impairment 减值impairment provision减值准备income statement利润表Liabilities负债Maturity 到期Net realizable value可变现净值Owners’ Equity 所有者权益post-amortization costs摊余成本Present value现值Profit利润Replacement cost重置成本stewardship 受托责任transferor转出方transferee转入方1.资产类科目Assets现金:Cash and cash equivalents 银行存款:Bank deposit应收账款:Account receivable应收票据:Notes receivable应收股利:Dividend receivable应收利息:Interest receivable其他应收款:Other receivables原材料:Raw materials在途物资:Materials in transport库存商品:inventory存货跌价准备:provision for the decline in value of inventories 坏账准备:Allowance for doubtful acounts待摊费用:Prepaid expense交易性金融资产:Trading financial assets持有至到期投资:held-to-maturity investment可供出售金融资产:Available-for-sale financial assets短期投资:Short-term investment长期股权投资:Long-term equity investment固定资产:Fixed assets累计折旧:Accumulated depreciation在建工程:Construction-in-process固定资产减值准备:provision for the decline in value of fixed assets 无形资产:Intangible assets累计摊销:Accumulated amortization商誉:Goodwill递延所得税资产:deferred tax assets (DTA)2.负债类Liability短期借款:Short-term loans/ borrowing长期借款:Long-term loans/ borrowing预收账款:advance from customers/ Deposit received应付票据:Notes payable应付账款:Account payable应付工资薪酬:wages payable应付股利:Dividends payable应付利息:Interest payable应交税费:Tax payable其他应付款:Other payables递延所得税负债:Deferred tax liabilities3.所有者权益类 OWNERS' EQUITY实收资本:Paid-in capital资本公积:Additional paid-in capital 盈余公积:Surplus reserves未分配利润:Retained earnings4.成本类科目Cost生产成本:Manufacturing Cost制造费用:Manufacturing overhead劳务成本:labor costs研发支出:R & D expenditure5.损益类Profit and loss主营业务收入:Main operating revenue 其他业务收入:Other operating revenue 营业外收入:Non-operating income投资收益:Investment income产品销售收入:sales revenue主营业务成本:Main operating costs;cost of goods sold / cost of sales 其他业务支出:Other operating costs营业外支出:Non-operating expenditure销售费用:Selling expense(advertisement)管理费用:General and administration expense (G&A expense)财务费用:Finance expense公允价值变动损益:Gain/loss of the change of fair value所得税:Income tax第二课流动资产GlossaryAllowance Method备抵法Bad debts坏账Cash 现金Cash Discounts现金折扣Cash Equivalents 现金等价物consigned goods代销存货Current Asset流动资产Direct Write-Off直接转销法finished products完工产品FIFO, First-in-first-out先进先出法general and administrative expenses管理费用goods in transit在途存货Gross Method总价法Inventory 存货LIFO: Last-in-first-out后进先出法Maturity 到期Merchandise 商品Net Method净价法NRV(Net Realizable Value) 可变现净值Notes Receivable应收票据Periodic system定期盘存Perpetual system永续盘存physical count 盘点purchase costs采购成本Specific Identification个别认定法the provision for the loss on decline in value of inventories存货跌价准备Trade Discounts商业折扣Receivables 应收款work in progress 在产品第3课非流动资产GlossaryAccumulated amortization累计摊销Amortization 摊销capitalize资本化Construction-in-process在建工程Costs Subsequent to Acquisition后续支出Discard 报废Depreciation折旧Disposal 处置double declining balance method双倍余额递减法expense费用化fiscal year 会计年度fixed assets固定资产Goodwill 商誉Impairment 减值Intangible Asset无形资产Noncurrent Asset非流动资产recoverable amount 可收回金额research and development(R&D) 研发salvage value 残值sum of the years digits年数总和法the straight-line method直线法unit of production method工作量法useful life 使用寿命第四课负债GlossaryContingency 或有事项Contingent 或有的contingent asset或有资产contingent Liability或有负债Coupon息票Current liability 流动负债Discount折价effective yield有效利率face value面值interest利息Liability负债loss contract亏损合同Market rate市场利率nominal rate名义利率Off-Balance-Sheet Financing表外融资Operating Leases经营租赁Capital leases融资租赁par面值pending litigation 未决诉讼Premium溢价principal本金virtually certain基本确定第五课投资Glossaryavailable for sale可供出售Consolidate 合并Control 控制Debt securities债务证券Derivative 衍生品Equity securities权益性证券Financial Asset 金融资产Held-to-maturity持有至到期Investee 被投资人Issuer 发行方Repurchase 回购post-amortization cost 摊余成本Security 有价证券Significant influence 重大影响Trading financial assets交易性金融资产Financial assets at fair value through profit or loss以公允价值计量且其变动计入当期损益的金融资产, including:Trading financial assets交易性金融资产andthe financial assets which are measured at their fair values and of which the variation is included in the current profits and losses指定为以公允价值计量且其变动计入当期损益的金融资产;the investments which will be held to their maturity;持有至到期投资loans and the account receivables; and贷款和应收款项Financial assets available for sale.可供出售金融资产继续阅读。
Question 1Canseco Company is preparing annual financial statements for December 31, 20X7. During 20X7, a customer fell while riding on the escalator and has filed a lawsuit for€140,000 because of an alleged back injury. The lawyer employed by the companyhas carefully assessed all of the possible ramifications.RequiredHow should the contingency be handled during 20X7 in each of the following cases? Give all necessary entries and any disclosure notes.1. Assume that the lawyer and management conclude that it is likely that thecompany will be liable. If the suit is lost, the lawyer’s reasonable estimate is thatthe amount of €140,000 will be assessed by the courts.2. Assume instead that the lawyer, the independent auditor, and management havereluctantly agreed that it is possible that the suit may be lost, but that damagesawarded could be any amount.3. Assume instead that the conclusion of legal counsel and management is that thechance of a contingent loss is unlikely. They believe that the suit is without merit.Review solutionsCase 1In accordance with IAS 37, a provision for this loss contingency would be recorded in the financial statements. A note describing the nature of the loss is optional.Loss due to accident .......................................................................... 140,000 Estimated provision for damages (lawsuit) ................................. 140,000 As mentioned in the Lesson Notes, this provision is likely to be disclosed in agrouping with other provisions, to avoid disclosure to the plaintiff.Case 2A provision is not accrued. The loss is likely but not readily determinable. A note describing the nature of the loss should be made.Disclosure note: A customer was injured on company premises and has sued for€140,000 in damages. The amount of damages is not determinable. Case 3This scenario does not require accrual of a provision or note disclosure. However, conservatism, coupled with the full disclosure principle, suggests that perhaps note disclosure could be made. It depends, in part, on how material the amount is.。
International Accounting StandardsIAS 37 Provisions, Contingent Liabilities and Contingent AssetsThis International Accounting Standard was approved by the IASC Board in July 1998 and became effective for financial statements covering periods beginning on or after 1 July 1999.Introduction1. IAS 37 prescribes the accounting and disclosure for all provisions, contingent liabilities and contingent assets, except:(a) those resulting from financial instruments that are carried at fair value;(b) those resulting from executory contracts, except where the contract is onerous. Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent;(c) those arising in insurance enterprises from contracts with policyholders; or(d) those covered by another International Accounting Standard.Provisions2. The Standard defines provisions as liabilities of uncertain timing or amount. A provision should be recognised when, and only when:(a) an enterprise has a present obligation (legal or constructive) as a result of a past event;(b) it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and(c) a reliable estimate can be made of the amount of the obligation. The Standard notes that it is only in extremely rare cases that a reliable estimate will not be possible.3. The Standard defines a constructive obligation as an obligation that derives from an enterprise's actions where:(a) by an established pattern of past practice, published policies or a sufficiently specific current statement, the enterprise has indicated to other parties that it will accept certain responsibilities; and(b) as a result, the enterprise has created a valid expectation on the part of those other parties that it will discharge those responsibilities.4. In rare cases, for example in a law suit, it may not be clear whether an enterprise has 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 balance sheet date. An enterprise recognises a provision for that present obligation if the other recognition criteria described above are met. If it is more likely than not that no present obligation exists, the enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote.5. The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date, in other words, the amount that an enterprise would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party at that time.6. The Standard requires that an enterprise should, in measuring a provision:(a) take risks and uncertainties into account. However, uncertainty does not justify the creation of excessive provisions or a deliberate overstatement of liabilities;(b) discount the provisions, where the effect of the time value of money is material, using a pre-tax discount rate (or rates) that reflect(s) current market assessments of the time value of money and those risks specific to the liability that have not been reflected in the best estimate of the expenditure. Where discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense;(c) take future events, such as changes in the law and technological changes, into account where there is sufficient objective evidence that they will occur; and(d) not take gains from the expected disposal of assets into account, even if the expected disposal is closely linked to the event giving rise to the provision.7. An enterprise may expect reimbursement of some or all of the expenditure required to settle a provision (for example, through insurance contracts, indemnity clauses or suppliers' warranties). An enterprise should:(a) recognise a reimbursement when, and only when, it is virtually certain that reimbursement will be received if the enterprise settles the obligation. The amount recognised for the reimbursement should not exceed the amount of the provision; and (b) recognise the reimbursement as a separate asset. In the income statement, the expense relating to a provision may be presented net of the amount recognised for a reimbursement.8. Provisions should be reviewed at each balance sheet date and adjusted to reflect thecurrent best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed.9. A provision should be used only for expenditures for which the provision was originally recognised.Provisions - Specific Applications10. The Standard explains how the general recognition and measurement requirements for provisions should be applied in three specific cases: future operating losses; onerous contracts; and restructurings.11. Provisions should not be recognised for future operating losses. An expectation of future operating losses is an indication that certain assets of the operation may be impaired. In this case, an enterprise tests these assets for impairment under IAS 36, Impairment of Assets.12. If an enterprise has a contract that is onerous, the present obligation under the contract should be recognised and measured as a provision. An onerous contract is one in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.13. The Standard defines a restructuring as a programme that is planned and controlled by management, and materially changes either:(a) the scope of a business undertaken by an enterprise; or(b) the manner in which that business is conducted.14. A provision for restructuring costs is recognised only when the general recognition criteria for provisions are met. In this context, a constructive obligation to restructure arises only when an enterprise:(a) has a detailed formal plan for the restructuring identifying at least:(i) the business or part of a business concerned;(ii) the principal locations affected;(iii) the location, function, and approximate number of employees who will be compensated for terminating their services;(iv) the expenditures that will be undertaken; and(v) when the plan will be implemented; and(b) has raised a valid expectation in those affected that it will carry out therestructuring by starting to implement that plan or announcing its main features to those affected by it.15. A management or board decision to restructure does not give rise to a constructive obligation at the balance sheet date unless the enterprise has, before the balance sheet date:(a) started to implement the restructuring plan; or(b) communicated the restructuring plan to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the enterprise will carry out the restructuring.16. Where a restructuring involves the sale of an operation, no obligation arises for the sale until the enterprise is committed to the sale, i.e. there is a binding sale agreement.17. A restructuring provision should include only the direct expenditures arising from the restructuring, which are those that are both:(a) necessarily entailed by the restructuring; and(b) not associated with the ongoing activities of the enterprise. Thus, a restructuring provision does not include such costs as: retraining or relocating continuing staff; marketing; or investment in new systems and distribution networks.Contingent Liabilities18. The Standard supersedes the parts of IAS 10, Contingencies and Events Occurring After the Balance Sheet Date[1], that deal with contingencies. The Standard defines a contingent liability as:(a) a possible obligation that arises from past events and whose 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 enterprise; or(b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or(ii) the amount of the obligation cannot be measured with sufficient reliability.19. An enterprise should not recognise a contingent liability. An enterprise should disclose a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote.Contingent Assets20. The Standard defines a contingent asset as a possible asset that arises from past events and whose 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 enterprise. An example is a claim that an enterprise is pursuing through legal processes, where the outcome is uncertain.21. An enterprise should not recognise a contingent asset. A contingent asset should be disclosed where an inflow of economic benefits is probable.22. When the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.Effective Date23. The Standard becomes operative for annual financial statements covering periods beginning on or after 1 July 1999. Earlier application is encouraged.The standards, which have been set in bold italic type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the Preface to International Accounting Standards. International Accounting Standards are not intended to apply to immaterial items (see paragraph 12 of the Preface).ObjectiveThe objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount.Scope1. This Standard should be applied by all enterprises in accounting for provisions, contingent liabilities and contingent assets, except:(a) those resulting from financial instruments that are carried at fair value;(b) those resulting from executory contracts, except where the contract is onerous;(c) those arising in insurance enterprises from contracts with policyholders; and(d) those covered by another International Accounting Standard.2. This Standard applies to financial instruments (including guarantees) that are not carried at fair value.3. Executory contracts are contracts under which neither party has performed any ofits obligations or both parties have partially performed their obligations to an equal extent. This Standard does not apply to executory contracts unless they are onerous.4. This Standard applies to provisions, contingent liabilities and contingent assets of insurance enterprises other than those arising from contracts with policyholders.5. Where another International Accounting Standard deals with a specific type of provision, contingent liability or contingent asset, an enterprise applies that Standard instead of this Standard. For example, certain types of provisions are also addressed in Standards on:(a) construction contracts (see IAS 11, Construction Contracts);(b) income taxes (see IAS 12, Income Taxes);(c) leases (see IAS 17, Leases). However, as IAS 17contains no specific requirements to deal with operating leases that have become onerous, this Standard applies to such cases; and(d) employee benefits (see IAS 19, Employee Benefits).6. Some amounts treated as provisions may relate to the recognition of revenue, for example where an enterprise gives guarantees in exchange for a fee. This Standard does not address the recognition of revenue. IAS 18, Revenue, identifies the circumstances in which revenue is recognised and provides practical guidance on the application of the recognition criteria. This Standard does not change the requirements of IAS 18.7. This Standard defines provisions as liabilities of uncertain timing or amount. In some countries the term 'provision' is also used in the context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Standard.8. Other International Accounting Standards specify whether expenditures are treated as assets or as expenses. These issues are not addressed in this Standard. Accordingly, this Standard neither prohibits nor requires capitalisation of the costs recognised whena provision is made.9. This Standard applies to provisions for restructuring (including discontinuing operations). Where a restructuring meets the definition of a discontinuing operation, additional disclosures may be required by IAS 35, Discontinuing Operations. Definitions10. The following terms are used in this Standard with the meanings specified:A provision is a liability of uncertain timing or amount.A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.An obligating event is an event that creates a legal or constructive obligation that results in an enterprise having no realistic alternative to settling that obligation.A legal obligation is an obligation that derives from:(a) a contract (through its explicit or implicit terms);(b) legislation; or(c) other operation of law.A constructive obligation is an obligation that derives from an enterprise's actions where:(a) by an established pattern of past practice, published policies or a sufficiently specific current statement, the enterprise has indicated to other parties that it will accept certain responsibilities; and(b) as a result, the enterprise has created a valid expectation on the part of those other parties that it will discharge those responsibilities.A contingent liability is:(a) a possible obligation that arises from past events and whose 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 enterprise; or(b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or(ii) the amount of the obligation cannot be measured with sufficient reliability.A contingent asset is a possible asset that arises from past events and whose 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 enterprise.An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.A restructuring is a programme that is planned and controlled by management, and materially changes either:(a) the scope of a business undertaken by an enterprise; or(b) the manner in which that business is conducted.Provisions and Other Liabilities11. Provisions 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. By contrast:(a) trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier; and(b) accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for example, amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions.Accruals are often reported as part of trade and other payables, whereas provisions are reported separately.Relationship between Provisions and Contingent Liabilities12. In a general sense, all provisions are contingent because they are uncertain in timing or amount. However, within this Standard the term 'contingent' is used for liabilities and assets that are not recognised because 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 enterprise. In addition, the term 'contingent liability' is used for liabilities that do not meet the recognition criteria.13. This Standard distinguishes between:(a) provisions - which are recognised as liabilities (assuming that a reliable estimate can be made) because they are present obligations and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations; and(b) contingent liabilities - which are not recognised as liabilities because they are either:(i) possible obligations, as it has yet to be confirmed whether the enterprise has a present obligation that could lead to an outflow of resources embodying economic benefits; or(ii) present obligations that do not meet the recognition criteria in this Standard (because either it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or a sufficiently reliable estimate of the amount of the obligation cannot be made).RecognitionProvisions14. A provision should be recognised when:(a) an enterprise has a present obligation (legal or constructive) as a result of a past event;[2](b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and(c) a reliable estimate can be made of the amount of the obligation.If these conditions are not met, no provision should be recognised.Present Obligation15. In 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 balance sheet date.16. In almost all cases it will be clear whether a past event has given rise to a present obligation. In rare cases, for example in a law suit, it may be disputed either whether certain events have occurred or whether those events result in a present obligation. In such a case, an enterprise determines whether a present obligation exists at the balance sheet date by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the balance sheet date. On the basis of such evidence:(a) where it is more likely than not that a present obligation exists at the balance sheet date, the enterprise recognises a provision (if the recognition criteria are met); and (b) where it is more likely that no present obligation exists at the balance sheet date, the enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote (see paragraph 86).Past Event17. A past event that leads to a present obligation is called an obligating event. For an event to be an obligating event, it is necessary that the enterprise has no realistic alternative to settling the obligation created by the event. This is the case only:(a) where the settlement of the obligation can be enforced by law; or(b) in the case of a constructive obligation, where the event (which may be an actionof the enterprise) creates valid expectations in other parties that the enterprise will discharge the obligation.18. Financial statements deal with the financial position of an enterprise at the end of its reporting period and not its possible position in the future. Therefore, no provision is recognised for costs that need to be incurred to operate in the future. The only liabilities recognised in an enterprise's balance sheet are those that exist at the balance sheet date.19. It is only those obligations arising from past events existing independently of an enterprise's future actions (i.e. the future conduct of its business) that are recognised as provisions. Examples of such obligations are penalties or clean-up costs for unlawful environmental damage, both of which would lead to an outflow of resources embodying economic benefits in settlement regardless of the future actions of the enterprise. Similarly, an enterprise recognises a provision for the decommissioning costs of an oil installation or a nuclear power station to the extent that the enterprise is obliged to rectify damage already caused. In contrast, because of commercial pressures or legal requirements, an enterprise may intend or need to carry out expenditure to operate in a particular way in the future (for example, by fitting smoke filters in a certain type of factory). Because the enterprise can avoid the future expenditure by its future actions, for example by changing its method of operation, it has no present obligation for that future expenditure and no provision is recognised.20. An obligation always involves another party to whom the obligation is owed. It is not necessary, however, to know the identity of the party to whom the obligation is owed - indeed the obligation may be to the public at large. Because an obligation always involves a commitment to another party, it follows that a management or board decision does not give rise to a constructive obligation at the balance sheet date unless the decision has been communicated before the balance sheet date to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the enterprise will discharge its responsibilities.21. An event that does not give rise to an obligation immediately may do so at a later date, because of changes in the law or because an act (for example, a sufficiently specific public statement) by the enterprise gives rise to a constructive obligation. For example, when environmental damage is caused there may be no obligation to remedy the consequences. However, the causing of the damage will become an obligating event when a new law requires the existing damage to be rectified or when the enterprise publicly accepts responsibility for rectification in a way that creates a constructive obligation.22. Where details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted as drafted. For the purpose of this Standard, such an obligation is treated as a legal obligation. Differences in circumstances surrounding enactment make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted.Probable Outflow of Resources Embodying Economic Benefits23. For a liability to qualify for recognition there must be not only a present obligation but also the probability of an outflow of resources embodying economic benefits to settle that obligation. For the purpose of this Standard[3], an outflow of resources or other event is regarded as probable if the event is more likely than not to occur, i.e. the probability that the event will occur is greater than the probability that it will not. Where it is not probable that a present obligation exists, an enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote (see paragraph 86).24. Where there are a number of similar obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognised (if the other recognition criteria are met).Reliable Estimate of the Obligation25. The use of estimates is an essential part of the preparation of financial statements and does not undermine their reliability. This is especially true in the case of provisions, which by their nature are more uncertain than most other balance sheet items. Except in extremely rare cases, an enterprise will be able to determine a range of possible outcomes and can therefore make an estimate of the obligation that is sufficiently reliable to use in recognising a provision.26. In the extremely rare case where no reliable estimate can be made, a liability exists that cannot be recognised. That liability is disclosed as a contingent liability (see paragraph 86).Contingent Liabilities27. An enterprise should not recognise a contingent liability.28. A contingent liability is disclosed, as required by paragraph 86, unless the possibility of an outflow of resources embodying economic benefits is remote.29. Where an enterprise is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability. The enterprise recognises a provision for the part of the obligation for which an outflow of resources embodying economic benefits is probable, except in the extremely rare circumstances where no reliable estimate can be made.30. Contingent liabilities may develop in a way not initially expected. Therefore, they are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow offuture economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).Contingent Assets31. An enterprise should not recognise a contingent asset.32. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise. An example is a claim that an enterprise is pursuing through legal processes, where the outcome is uncertain.33. Contingent assets are not recognised in financial statements since this may result in the recognition of income that may never be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.34. A contingent asset is disclosed, as required by paragraph 89, where an inflow of economic benefits is probable.35. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs. If an inflow of economic benefits has become probable, an enterprise discloses the contingent asset (see paragraph 89).MeasurementBest Estimate36. The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date.37. The best estimate of the expenditure required to settle the present obligation is the amount that an enterprise would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party at that time. It will often be impossible or prohibitively expensive to settle or transfer an obligation at the balance sheet date. However, the estimate of the amount that an enterprise would rationally pay to settle or transfer the obligation gives the best estimate of the expenditure required to settle the present obligation at the balance sheet date.38. The estimates of outcome and financial effect are determined by the judgement of the management of the enterprise, supplemented by experience of similar transactions and, in some cases, reports from independent experts. The evidence considered。
