PAS 37: PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

PAS 37

Prescribes the accounting and disclosure requirements for provisions, contingent liabilities and contingent assets to help users understand their nature, timing and amount.

Executory Contracts if not onerous

PAS 37 is not applied to

Provisions

A liability of uncertain timing or amount. These are necessarily be estimated.

Example of provisions

Warranty obligations

Example of provisions

Estimated liabilities on pending lawsuits

Example of provisions

Provisions for environmental damages

Example of provisions

Provisions of decommissioning costs of an item of PPE

Example of provisions

Obligations caused by an entity’s policy to make refunds to customers

Example of provisions

Obligations arising from guarantees

Example of provisions

Provisions on onerous contracts

Example of provisions

Provisions for restructuring costs

Provision should be recognized when

(a) When the entity has a present obligation (b) It is probable that an outflow of resources will be required to settle the obligation (3) The amount of obligation can be reliably estimated.

Contingent liabilities

A possible obligation 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 entity. Or a present obligation but is not probable and cannot e reliably estimated. DISCLOSED ONLY.

Contingent assets

those that are not recognized because they do not meet all of the asset recognition criteria. Disclosed only if the inflow of economic benefits is probable.

Best estimate

Provisions are measured at the ____ ________ of the amount needed to settle them at the end of the reporting period.

Expected value

If the provision being measured involves a large population of items, the obligation is measured at its _______. It is computed by weighting all possible outcomes by their associated probabilities

Midpoint

if there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the ______ of the range is used.

Risk adjustment factor

Estimates may be increased by a _______________ to provide an allowance for imprecision inherent in estimates.

Reimbursement asset

If another party is expected to reimburse the settlement amount of a provision, a ______________ is recognized if its virtually certain that the reimbursement asset will be received.

Debit to expense, Credit to liability

Provisions are normally recognized as

Prospectively

Changes in provisions are accounts for _______ by accruing an additional amount or by reversing a previously recognized amount.

Restructuring

A program that is planned and controlled by management, and materially changes either the scope of a business undertaken or the manner in which that business is conducted.

Binding sale agreement at the end of reporting period

a legal obligation exists because the entity can still change its mind and may withdraw its plan to sell if it cannot find a purchaser under acceptable terms.

Binding sale agreement after the end of the reporting period

no provision is recognized because no present obligation exists, this may be disclosed as a non-adjusting event.

Closure or reorganization exists if

(a) Detailed formal plan for restructuring is adopted and (b) The plan is announced to those affected by it.

Excluded cost from restructuring

retraining or relocating continuing staff, marketing, investment in new systems and distribution networks