IAS 37 PROVISION, CONTIGENT LIABILITIES AND CONTIGENT ASSETS
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| Ias 37 |
Liability bắt nguồn các obligations, obligation bao gồm 2 dạng: legal and constructive obligation.
Accounting treatment cho các obligation này phụ thuộc vào khả năng sảy ra của obligation đó, mình xin tóm tắt ở bảng dưới đây:
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Actual liability
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Provision
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Contingent liability
|
|
-
Present obligation
(100% - 95%): recognize
immediately
as a liability
Eg: Account payable
|
-
Probable obligation (95%
- 50%) and amount can be estimated
realiably: provide for
Eg:
probable
obligation from lawsuit
|
-
Possible obligation
(50% - 5%): disclose
-
Remote obligation(<5%):
do nothing
Eg: possible
obligation from lawsuit
|
2. Classification of asset:
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Actual Asset
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Contingent asset
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|
-
Present asset (100% - 95%):
recognize immediately as a assets
Eg: Account receivable
|
-
Probable assets (95% -
50%): disclose
-
Possible assets (50% -
5%): do nothing
Eg:
assets from lawsuit filed by a company
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- It expects to have to pay about $100,000. A provision is recognized.
- Possible damages are $100,000 but it is not expected to have to pay them. A contingent liability is Disclosed.
- The company expects to have to pay damages but is unable to estimate the amount. A contingent liability is disclosed.
- The company expects to receive damages of $100,000 and this is virtually certain. An asset is recognized.
- The company expects to probably receive damages of $100,000. A contingent asset is disclosed.
- The company thinks it may receive damages, but it is not probable. No disclosure.
3. Example of provisions:
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Issues
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Provide
or not?
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Warranty
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Provision, at
probability-weighted expected value
|
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Major repair
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No provision,
as no obligation
|
|
Environment
contamination
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Only provide
when entity has broken the environment law or has an environment policy
|
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Onerous
contract
|
provide
|
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Operating loss
|
No provision
as no obligation
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Customer
refunds
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Only provide
if entity has a refund policy, at probability-weighted expected value
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Candel is being sued by a customer for $2 million for breach of contract over a cancelled order. Candel has obtained legal opinion that there is a 20% chance that Candel will lose the case. Accordingly Candel has provided $400,000 ($2 million × 20%) in respect of the claim. The unrecoverable legal costs of defending the action are estimated at $100,000. These have not been provided for as the case will not go to court until next year.
Question: What is the amount of the provision that should be made by Candel in accordance with IAS 37 Provisions, contingent liabilities and contingent assets?
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