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    Pas 37 Provisions Contingent Liab Contingent Assets

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    wendy alcoseba
    This document discusses provisions, contingent liabilities, and contingent assets under PAS 37. It defines a provision as a liability of uncertain timing or amount that differs from other liabilities due to uncertainty around the expenditure required. A provision is recognized when there is a present obligation from a past event, an outflow of resources is probable, and the amount can be reliably estimated. A provision is measured at the present value of expected expenditures if the time value is material. Reimbursements are recognized separately from provisions. Provisions are reviewed and adjusted at each reporting date. The document also discusses product warranties, guarantees, and contingent assets.

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    Pas 37 Provisions Contingent Liab Contingent Assets

    Uploaded by

    wendy alcoseba
    545 views15 pages
    This document discusses provisions, contingent liabilities, and contingent assets under PAS 37. It defines a provision as a liability of uncertain timing or amount that differs from other liabilities due to uncertainty around the expenditure required. A provision is recognized when there is a present obligation from a past event, an outflow of resources is probable, and the amount can be reliably estimated. A provision is measured at the present value of expected expenditures if the time value is material. Reimbursements are recognized separately from provisions. Provisions are reviewed and adjusted at each reporting date. The document also discusses product warranties, guarantees, and contingent assets.

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    This document discusses provisions, contingent liabilities, and contingent assets under PAS 37. It defines a provision as a liability of uncertain timing or amount that differs from other liabilities due to uncertainty around the expenditure required. A provision is recognized when there is a present obligation from a past event, an outflow of resources is probable, and the amount can be reliably estimated. A provision is measured at the present value of expected expenditures if the time value is material. Reimbursements are recognized separately from provisions. Provisions are reviewed and adjusted at each reporting date. The document also discusses product warranties, guarantees, and contingent assets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    545 views15 pages

    Pas 37 Provisions Contingent Liab Contingent Assets

    Uploaded by

    wendy alcoseba
    This document discusses provisions, contingent liabilities, and contingent assets under PAS 37. It defines a provision as a liability of uncertain timing or amount that differs from other liabilities due to uncertainty around the expenditure required. A provision is recognized when there is a present obligation from a past event, an outflow of resources is probable, and the amount can be reliably estimated. A provision is measured at the present value of expected expenditures if the time value is material. Reimbursements are recognized separately from provisions. Provisions are reviewed and adjusted at each reporting date. The document also discusses product warranties, guarantees, and contingent assets.

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    © All Rights Reserved
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    PAS 37 Provisions, Contingent

    Liabilities and Contingent Assets


    2020 Edition

    Lecture Aid

    By: Zeus Vernon B. Millan


    1
    Provisions
    • A provision is a liability of uncertain timing or amount.
    • Provisions differ from other liabilities because of the
    uncertainty about the timing or amount of expenditure
    required in settlement. Unlike for other liabilities, provisions
    must be estimated. Although, some other liabilities are also
    estimated, their uncertainty is generally much less than for
    provisions.
    • Other liabilities, such as accruals, are reported as part of
    “Trade and other payables” whereas provisions are reported
    separately.

    Conceptual Framework & Acctg.


    2
    Standards (by: Zeus Vernon B. Millan)
    Recognition of provisions

    Provisions are presented in the statement of financial position


    separately from other types of liabilities. A provision is recognized
    when all of the following conditions are met:
    1. The entity has a present obligation (legal or constructive) as a
    result of a past event;
    2. It is probable that an outflow of resources embodying economic
    benefits will be required to settle the obligation; and
    3. A reliable estimate can be made of the amount of the obligation.

    Conceptual Framework & Acctg.


    3
    Standards (by: Zeus Vernon B. Millan)
    Provision vs. Contingent liability

    Conceptual Framework & Acctg.


    4
    Standards (by: Zeus Vernon B. Millan)
    Conceptual Framework & Acctg.
    5
    Standards (by: Zeus Vernon B. Millan)
    Measurement

    Conceptual Framework & Acctg.


    6
    Standards (by: Zeus Vernon B. Millan)
    Present value
    • If the effect of the time value of money is material, the
    amount of a provision shall be the present value of the
    expenditures expected to be required to settle the
    obligation.

    Expected disposal of assets


    • Gains from the expected disposal of assets shall not be
    taken into account in measuring a provision. Gains shall
    be recognized separately and only when the assets are
    actually disposed of.
    Conceptual Framework & Acctg.
    7
    Standards (by: Zeus Vernon B. Millan)
    Reimbursements
    • Where some or all of the expenditure required in settling a provision
    is expected to be reimbursed by another party, the reimbursement is
    recognized only when it is virtually certain that reimbursement
    will be received if the entity settles the obligation.

    Provision for / Expense 100,000


    Payable to Company A 100,000

    • The reimbursement shall be treated as a separate asset.

    Receivable from Company B 75,000


    Other income from... 75,000

    • In the statement of profit or loss and other comprehensive income,


    the expense relating to a provision may be presented net of the
    amount recognized for a reimbursement.
    Conceptual Framework & Acctg.
    8
    Standards (by: Zeus Vernon B. Millan)
    Changes in provisions

    • Provisions shall be reviewed at the end of each reporting


    period and adjusted to reflect the current 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 shall be reversed.

    Conceptual Framework & Acctg.


    9
    Standards (by: Zeus Vernon B. Millan)
    Product warranties and guarantees

    • If a customer has the option to purchase a warranty


    separately (for example, because the warranty is priced or
    negotiated separately), the warranty is accounted for in accordance
    with PFRS 15 Revenue from Contracts with Customers.

    • If a customer does not have the option to purchase a warranty


    separately, the warranty is accounted for in accordance with PAS 37
    Provisions, Contingent Liabilities and Contingent Assets unless the
    promised warranty provides the customer with a service in addition
    to the assurance that the product complies with agreed-upon
    specifications.

    Conceptual Framework & Acctg.


    10
    Standards (by: Zeus Vernon B. Millan)
    Liability for premiums

    • A customer’s option to acquire additional goods or


    services for free or at a discount is accounted for under
    PFRS 15 if the option provides the customer a
    material right that the customer would not receive
    without entering into that contract.
    • A customer option that does not provide the customer
    with a material right is not accounted for under PFRS 15;
    and therefore, accounted for in accordance with PAS 37.

    Conceptual Framework & Acctg.


    11
    Standards (by: Zeus Vernon B. Millan)
    Guarantee for indebtedness of others

    • A provision for the guarantee for indebtedness of others


    is recognized when it becomes probable that the entity
    will be held liable for the guarantee, such as when the
    original debtor defaults on the loan.
    Example:
    Company A has a loan of P2,000,000 to RCBC
    Company B is the guarantor of the loan of Company A

    If Company A defaults on the loan payment, Company B will only


    recognize a liability to RCBC when the Bank already exhausted
    the assets of Company A and still the loan cannot be fully offset
    from the assets of Company A.

    Conceptual Framework & Acctg.


    12
    Standards (by: Zeus Vernon B. Millan)
    Contingent assets

    Conceptual Framework & Acctg.


    13
    Standards (by: Zeus Vernon B. Millan)
    APPLICATION OF
    CONCEPTS
    PROBLEM 1: MULTIPLE CHOICE

    PROBLEM 2: MULTIPLE CHOICE

    Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 14


    END
    Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 15

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