Question Tag: IAS 37

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  • 6 Marks

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

LALUPON Plc owns a piece of land in a residential area. PONJEB Ltd has leased the piece of land from LALUPON Plc and is using it to store and dispense gas. The Federal government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, LALUPON Plc introduced a hazardous policy and has begun to apply the policy to its properties.

LALUPON Plc has had a report of a gas leakage and subsequent fire outbreak which damaged surrounding properties, but no life was lost. LALUPON Plc has no right of recourse against PONJEB Ltd or its insurance company for the clean-up and compensations to owners of properties destroyed. At April 30, 2014, it is virtually certain that draft legislation requiring a clean-up of the land and payment of compensations to victims will be enacted.

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

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  • 7 Marks

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Gama Plastic Limited owns a number of plastic recycling plants in various parts of the country which supply most of the raw material used by Gama Plastic Limited for its production of household and corporate plastic products.

On December 1, 2015, the directors of Gama Plastic Limited announced publicly that it intends to voluntarily reduce the level of harmful emissions from its recycling plants through modifications of the plants.

The average useful economic life of these plants as of December 31, 2015, was 15 years. Gama Plastic Limited charges depreciation in relation to the recycling plants to cost of sales on a straight-line basis.

The directors believe that while the modifications will be effective from early 2016 onward, the actual cash costs of the modifications will be as follows:

Date Amount (N’000)
December 31, 2016 100,000
December 31, 2017 80,000
December 31, 2018 140,000

No contract was signed until 2016, but Gama Plastic Limited prides itself on its excellent public image and has a well-known reputation for meeting both legal and constructive obligations.

The directors of Gama Plastic Limited believe that it is appropriate to use discounted cash flow techniques and that an appropriate rate would be 10%, with the following discount factors:

Year PV Factor
1 0.909
2 0.826
3 0.751
4 0.683
5 0.620
6 0.564

Required:

Assuming the actual cash cost of the modification is a reliable estimate, calculate the provisions that should be included in the statement of financial position and the charges to the statement of profit or loss of Gama Plastic Limited in respect of the proposal for each of the years 2015 and 2016. (7 Marks)

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  • 7 Marks

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

International Accounting Standard (IAS) 37 on Provisions, Contingent Liabilities, and Contingent Assets sets out the principles of accounting for these items. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and engaging in creative accounting.

Required:

What is provisions, and how is it employed by management to engage in creative accounting? (7 Marks)

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  • 14 Marks

CR – May 2023 – L3 – Q2a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Analyze Octopus Petroleum’s performance and ability to finance future oil spill costs

Octopus Petroleum PLC is a multinational oil and gas group operating in the Niger Delta areas of Nigeria. The company has been highly profitable over the years. The group explores and extracts natural resources, holds reserves, and has recently become involved in the downstream sector by opening various commercial retail outlets for the sale of petrol to motorists.

In June 2020, the company was involved in an ecological disaster in the Ogoni area of Niger Delta as a result of massive oil spillage due to some technical faults, thereby resulting in spilling oil into the surrounding ocean and damaging wildlife and local communities.

Investors are concerned about the future prospects of Octopus Petroleum PLC and whether it represents a safe investment since the company normally operates in the lucrative oil and gas sector.

Octopus Petroleum Group annual report for the year 2020 and its comparative figures are shown below:

Octopus Petroleum Group Consolidated Statement of Profit or Loss for the Year Ended December 31

Octopus Petroleum Group Consolidated Statement of Financial Position as at December 31

Additional Information:

  1. The N3,700 million provision for the Ogoni oil spill is an estimated cost net of relevant tax.
  2. Calculating the financial cost of the oil spill in Ogoni land has been slightly problematic. However, N530 million had been expended by year-end, while the future costs of clean-up and compensation are undetermined.
  3. One uncertain cost is fines payable to the Federal Government of Nigeria. Past fines have exceeded N2,500 million.
  4. Octopus Petroleum Group vertically integrated in 2020 by acquiring and rebranding petrol stations.
  5. Oil reserves were at record-high levels in 2020.
  6. Oil prices increased by approximately 5% during 2020.
  7. The company values inventory on a last-in-first-out (LIFO) basis, which contravenes IAS 2.
  8. Dividend payments remained at N625 million for both 2020 and 2019.
  9. Investors typically evaluate companies using these ratios:
    • Profitability Ratios:
      • Return on Capital Employed (ROCE)
      • Return on Equity (ROE)
      • Gross Profit Percentage
      • Operating Profit Percentage
    • Liquidity Ratios:
      • Current Ratio
      • Acid Test Ratio
    • Resource Utilization and Financial Position Ratios:
      • Inventory Turnover
      • Asset Turnover
      • Interest Cover
      • Gearing Ratio

Required:

(a) Analyze the performance of Octopus Petroleum Group over the two-year period. Your analysis should also consider the group’s ability to finance the cost of the oil spill in Ogoni land in the coming years. (14 Marks)

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  • 15 Marks

CR – Nov 2023 – L3 – SC – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Evaluate Roman Limited's recognition of provision for emission reduction costs, compute the provision amounts, and explain the profit or loss components.

Roman Limited prepares its financial statements in accordance with International Accounting Standards. On March 16, 2017, Roman Limited made a public announcement of a decision to reduce the level of emission of harmful chemicals from its factories. The average useful life of the factories on March 31, 2017 was 25 years. The depreciation of the factories is computed on a straight-line basis and charged to cost of sales. The directors formulated the proposal for emission reduction following an agreement in principle earlier in the year.

The directors prepared detailed estimates of the costs of their proposals, showing the following expenditures:

  • N60 million on March 31, 2018
  • N60 million on March 31, 2019
  • N80 million on March 31, 2020

All estimates were for actual anticipated cash payments. No contracts were entered into until after April 1, 2017. The estimate proved accurate regarding the expenditure due on March 31, 2018. When the directors decided to proceed with this project, they used discounted cash flow techniques to appraise the proposed investment, with an annual discount rate of 8%. The company has a reputation for fulfilling its financial commitments after it has publicly announced them. Roman Limited has made a provision for the expected costs of its proposal in the financial statements for the year ended March 31, 2017.

In accordance with the provisions of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets:

Required:
a. Explain the decision of the directors of Roman Limited to recognize the provision in the statement of financial position as at March 31, 2017.
(6 Marks)

b. Compute the appropriate provisions in the statement of financial position in respect of the proposed expenditure at March 31, 2017, and March 31, 2018.
(4 Marks)

Compute the TWO components of the charge to the statement of profit or loss in respect of the proposal for the year ended March 31, 2018. You should explain how each component arises and identify where in the statement of profit or loss each component is reported.
(5 Marks)

(Total 15 Marks)

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  • 30 Marks

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.

The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:

  • Provision for litigation (recognized in financial statements): ₦96 million
  • Litigation cases as defendant: 50
  • Litigation cases as plaintiff: 10
  • Claims in favor of the Bank: ₦2.7 billion
  • Claims against the Bank (including the ₦2.1 billion case): ₦3.2 billion

Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.

(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.

(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.

(5 Marks)

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  • 15 Marks

FR – May 2017 – L2 – SB – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Explain criteria for recognizing provisions, differentiate between provisions and contingent liabilities, and apply IAS 37 to specific company scenarios.

a. IAS – 37 applies to all provisions and contingencies apart from those covered by the specific requirement of other standards.

Therefore, provisions differ from other liabilities because there is uncertainty about timing or amount of the future cashflow required to settle the liability.

Required:

  1. Explain the criteria for recognition of provisions in the financial statements and distinguish between provisions and contingent liabilities.
    (6 Marks)

b. The following activities took place in THREE different companies:

  1. Otapiapia Plc: A Rat Trap Company based in Nigeria has just secured exportation of rat killers to South Africa. The advertising slogan of the rat killers is “KILL the BLACKS.” A South African anti-racist movement with a representative in Nigeria is claiming N15,000,000 from the company as damages because the advertising slogan allegedly compromises the dignity of black people. The company’s legal representative believes that the success of the claim will depend on the judge who presides over the case. They estimate, however, that there is a 70 percent probability that the claim will be thrown out and a 30 percent probability that it will succeed.
  2. Ire-Akari Motors Plc: A Nigerian company that specialises in the manufacture of “made-in-Nigeria cars.” During the current financial year, 100 cars have been completed and sold. During testing, a defect was found in their steering mechanism. All 100 customers that bought the cars were duly informed of the defect and were told to bring their cars back to have the defects repaired at no cost. All the customers have indicated that this is the only remedy they require. The estimated cost of the recall is N10.5m. The manufacturer of the steering mechanism, a quoted company with sufficient funds, has accepted responsibility for the defect and has undertaken to reimburse Ire-Akari Motors Plc for all costs that it might incur.
  3. Abeokuta Electricity Company Plc: This company sold a number of electricity transformers with a warranty in the year ended December 31, 2015. At the beginning of the year, the provisions for warranty stood at N5,625,000. A number of claims have been settled during the period for N3,000,000. At the year-end, there were unsettled claims for 300 customers. Experience is that 40% of the claims submitted do not fulfil warranty conditions and can be defended at no cost. The average cost of settling other claims will be N52,500 each.

Required: Explain how the matters in (b)(i) to (b)(iii) above should be accounted for in the financial statements of the three companies using figures to illustrate your points where appropriate.
(9 Marks)

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  • 14 Marks

FR – Nov 2019 – L2 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Distinguish between provisions, contingent liabilities, and contingent assets as defined in IAS 37.

IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, sets out the principles of accounting for these items and classifies when provisions should not be made prior to its issue. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and of creative accounting.

Required:

Distinguish between provisions, contingent liabilities, and contingent assets as contained in IAS 37.
(14 Marks)

IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, sets out the principles of accounting for these items and classifies when provisions should not be made prior to its issue. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and of creative accounting.

Required:

Distinguish between provisions, contingent liabilities, and contingent assets as contained in IAS 37.
(14 Marks)

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  • 5 Marks

FR – Dec 2022 – L2 – Q5b – Definition of Liability and Provisions

This question asks candidates to define liabilities and describe circumstances under which provisions should be recognized.

The definition of a liability forms an important element of the International Accounting
Standards Board’s Framework for the Preparation and Presentation of Financial Statements
which, in turn, forms the basis for IAS 37: Provisions, Contingent Liabilities and Contingent
Assets.

Required

Define liability and describe the circumstances under which provisions should be recognized.

 

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  • 5 Marks

FR – Mar/Jul 2020 – L2 – Q2b – Recognition of Provisions under IAS 37

Explain the recognition criteria for provisions in accordance with IAS 37, including situations when provisions should be recognized.

Explain the recognition criteria on provisions in accordance with International Accounting Standards (IAS 37) on provisions, contingent liabilities, and contingent assets. (5 Marks)

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  • 6 Marks

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

LALUPON Plc owns a piece of land in a residential area. PONJEB Ltd has leased the piece of land from LALUPON Plc and is using it to store and dispense gas. The Federal government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, LALUPON Plc introduced a hazardous policy and has begun to apply the policy to its properties.

LALUPON Plc has had a report of a gas leakage and subsequent fire outbreak which damaged surrounding properties, but no life was lost. LALUPON Plc has no right of recourse against PONJEB Ltd or its insurance company for the clean-up and compensations to owners of properties destroyed. At April 30, 2014, it is virtually certain that draft legislation requiring a clean-up of the land and payment of compensations to victims will be enacted.

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

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  • 7 Marks

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Gama Plastic Limited owns a number of plastic recycling plants in various parts of the country which supply most of the raw material used by Gama Plastic Limited for its production of household and corporate plastic products.

On December 1, 2015, the directors of Gama Plastic Limited announced publicly that it intends to voluntarily reduce the level of harmful emissions from its recycling plants through modifications of the plants.

The average useful economic life of these plants as of December 31, 2015, was 15 years. Gama Plastic Limited charges depreciation in relation to the recycling plants to cost of sales on a straight-line basis.

The directors believe that while the modifications will be effective from early 2016 onward, the actual cash costs of the modifications will be as follows:

Date Amount (N’000)
December 31, 2016 100,000
December 31, 2017 80,000
December 31, 2018 140,000

No contract was signed until 2016, but Gama Plastic Limited prides itself on its excellent public image and has a well-known reputation for meeting both legal and constructive obligations.

The directors of Gama Plastic Limited believe that it is appropriate to use discounted cash flow techniques and that an appropriate rate would be 10%, with the following discount factors:

Year PV Factor
1 0.909
2 0.826
3 0.751
4 0.683
5 0.620
6 0.564

Required:

Assuming the actual cash cost of the modification is a reliable estimate, calculate the provisions that should be included in the statement of financial position and the charges to the statement of profit or loss of Gama Plastic Limited in respect of the proposal for each of the years 2015 and 2016. (7 Marks)

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  • 7 Marks

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

International Accounting Standard (IAS) 37 on Provisions, Contingent Liabilities, and Contingent Assets sets out the principles of accounting for these items. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and engaging in creative accounting.

Required:

What is provisions, and how is it employed by management to engage in creative accounting? (7 Marks)

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  • 14 Marks

CR – May 2023 – L3 – Q2a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Analyze Octopus Petroleum’s performance and ability to finance future oil spill costs

Octopus Petroleum PLC is a multinational oil and gas group operating in the Niger Delta areas of Nigeria. The company has been highly profitable over the years. The group explores and extracts natural resources, holds reserves, and has recently become involved in the downstream sector by opening various commercial retail outlets for the sale of petrol to motorists.

In June 2020, the company was involved in an ecological disaster in the Ogoni area of Niger Delta as a result of massive oil spillage due to some technical faults, thereby resulting in spilling oil into the surrounding ocean and damaging wildlife and local communities.

Investors are concerned about the future prospects of Octopus Petroleum PLC and whether it represents a safe investment since the company normally operates in the lucrative oil and gas sector.

Octopus Petroleum Group annual report for the year 2020 and its comparative figures are shown below:

Octopus Petroleum Group Consolidated Statement of Profit or Loss for the Year Ended December 31

Octopus Petroleum Group Consolidated Statement of Financial Position as at December 31

Additional Information:

  1. The N3,700 million provision for the Ogoni oil spill is an estimated cost net of relevant tax.
  2. Calculating the financial cost of the oil spill in Ogoni land has been slightly problematic. However, N530 million had been expended by year-end, while the future costs of clean-up and compensation are undetermined.
  3. One uncertain cost is fines payable to the Federal Government of Nigeria. Past fines have exceeded N2,500 million.
  4. Octopus Petroleum Group vertically integrated in 2020 by acquiring and rebranding petrol stations.
  5. Oil reserves were at record-high levels in 2020.
  6. Oil prices increased by approximately 5% during 2020.
  7. The company values inventory on a last-in-first-out (LIFO) basis, which contravenes IAS 2.
  8. Dividend payments remained at N625 million for both 2020 and 2019.
  9. Investors typically evaluate companies using these ratios:
    • Profitability Ratios:
      • Return on Capital Employed (ROCE)
      • Return on Equity (ROE)
      • Gross Profit Percentage
      • Operating Profit Percentage
    • Liquidity Ratios:
      • Current Ratio
      • Acid Test Ratio
    • Resource Utilization and Financial Position Ratios:
      • Inventory Turnover
      • Asset Turnover
      • Interest Cover
      • Gearing Ratio

Required:

(a) Analyze the performance of Octopus Petroleum Group over the two-year period. Your analysis should also consider the group’s ability to finance the cost of the oil spill in Ogoni land in the coming years. (14 Marks)

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  • 15 Marks

CR – Nov 2023 – L3 – SC – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Evaluate Roman Limited's recognition of provision for emission reduction costs, compute the provision amounts, and explain the profit or loss components.

Roman Limited prepares its financial statements in accordance with International Accounting Standards. On March 16, 2017, Roman Limited made a public announcement of a decision to reduce the level of emission of harmful chemicals from its factories. The average useful life of the factories on March 31, 2017 was 25 years. The depreciation of the factories is computed on a straight-line basis and charged to cost of sales. The directors formulated the proposal for emission reduction following an agreement in principle earlier in the year.

The directors prepared detailed estimates of the costs of their proposals, showing the following expenditures:

  • N60 million on March 31, 2018
  • N60 million on March 31, 2019
  • N80 million on March 31, 2020

All estimates were for actual anticipated cash payments. No contracts were entered into until after April 1, 2017. The estimate proved accurate regarding the expenditure due on March 31, 2018. When the directors decided to proceed with this project, they used discounted cash flow techniques to appraise the proposed investment, with an annual discount rate of 8%. The company has a reputation for fulfilling its financial commitments after it has publicly announced them. Roman Limited has made a provision for the expected costs of its proposal in the financial statements for the year ended March 31, 2017.

In accordance with the provisions of IAS 37 – Provisions, Contingent Liabilities, and Contingent Assets:

Required:
a. Explain the decision of the directors of Roman Limited to recognize the provision in the statement of financial position as at March 31, 2017.
(6 Marks)

b. Compute the appropriate provisions in the statement of financial position in respect of the proposed expenditure at March 31, 2017, and March 31, 2018.
(4 Marks)

Compute the TWO components of the charge to the statement of profit or loss in respect of the proposal for the year ended March 31, 2018. You should explain how each component arises and identify where in the statement of profit or loss each component is reported.
(5 Marks)

(Total 15 Marks)

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  • 30 Marks

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.

The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:

  • Provision for litigation (recognized in financial statements): ₦96 million
  • Litigation cases as defendant: 50
  • Litigation cases as plaintiff: 10
  • Claims in favor of the Bank: ₦2.7 billion
  • Claims against the Bank (including the ₦2.1 billion case): ₦3.2 billion

Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.

(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.

(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.

(5 Marks)

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  • 15 Marks

FR – May 2017 – L2 – SB – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Explain criteria for recognizing provisions, differentiate between provisions and contingent liabilities, and apply IAS 37 to specific company scenarios.

a. IAS – 37 applies to all provisions and contingencies apart from those covered by the specific requirement of other standards.

Therefore, provisions differ from other liabilities because there is uncertainty about timing or amount of the future cashflow required to settle the liability.

Required:

  1. Explain the criteria for recognition of provisions in the financial statements and distinguish between provisions and contingent liabilities.
    (6 Marks)

b. The following activities took place in THREE different companies:

  1. Otapiapia Plc: A Rat Trap Company based in Nigeria has just secured exportation of rat killers to South Africa. The advertising slogan of the rat killers is “KILL the BLACKS.” A South African anti-racist movement with a representative in Nigeria is claiming N15,000,000 from the company as damages because the advertising slogan allegedly compromises the dignity of black people. The company’s legal representative believes that the success of the claim will depend on the judge who presides over the case. They estimate, however, that there is a 70 percent probability that the claim will be thrown out and a 30 percent probability that it will succeed.
  2. Ire-Akari Motors Plc: A Nigerian company that specialises in the manufacture of “made-in-Nigeria cars.” During the current financial year, 100 cars have been completed and sold. During testing, a defect was found in their steering mechanism. All 100 customers that bought the cars were duly informed of the defect and were told to bring their cars back to have the defects repaired at no cost. All the customers have indicated that this is the only remedy they require. The estimated cost of the recall is N10.5m. The manufacturer of the steering mechanism, a quoted company with sufficient funds, has accepted responsibility for the defect and has undertaken to reimburse Ire-Akari Motors Plc for all costs that it might incur.
  3. Abeokuta Electricity Company Plc: This company sold a number of electricity transformers with a warranty in the year ended December 31, 2015. At the beginning of the year, the provisions for warranty stood at N5,625,000. A number of claims have been settled during the period for N3,000,000. At the year-end, there were unsettled claims for 300 customers. Experience is that 40% of the claims submitted do not fulfil warranty conditions and can be defended at no cost. The average cost of settling other claims will be N52,500 each.

Required: Explain how the matters in (b)(i) to (b)(iii) above should be accounted for in the financial statements of the three companies using figures to illustrate your points where appropriate.
(9 Marks)

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  • 14 Marks

FR – Nov 2019 – L2 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Distinguish between provisions, contingent liabilities, and contingent assets as defined in IAS 37.

IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, sets out the principles of accounting for these items and classifies when provisions should not be made prior to its issue. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and of creative accounting.

Required:

Distinguish between provisions, contingent liabilities, and contingent assets as contained in IAS 37.
(14 Marks)

IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, sets out the principles of accounting for these items and classifies when provisions should not be made prior to its issue. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and of creative accounting.

Required:

Distinguish between provisions, contingent liabilities, and contingent assets as contained in IAS 37.
(14 Marks)

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You're reporting an error for "FR – Nov 2019 – L2 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)"

  • 5 Marks

FR – Dec 2022 – L2 – Q5b – Definition of Liability and Provisions

This question asks candidates to define liabilities and describe circumstances under which provisions should be recognized.

The definition of a liability forms an important element of the International Accounting
Standards Board’s Framework for the Preparation and Presentation of Financial Statements
which, in turn, forms the basis for IAS 37: Provisions, Contingent Liabilities and Contingent
Assets.

Required

Define liability and describe the circumstances under which provisions should be recognized.

 

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  • 5 Marks

FR – Mar/Jul 2020 – L2 – Q2b – Recognition of Provisions under IAS 37

Explain the recognition criteria for provisions in accordance with IAS 37, including situations when provisions should be recognized.

Explain the recognition criteria on provisions in accordance with International Accounting Standards (IAS 37) on provisions, contingent liabilities, and contingent assets. (5 Marks)

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