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ACCA Applied Knowledge · Financial Accounting · Disclosure notes

At the reporting date Bram Co has won a court case and is virtually certain to receive $200,000 in compensation from a supplier, with the receipt confirmed after the year end by the court. Separately, it expects an inflow of $50,000 from another claim that is only probable. Which treatment complies with IAS 37?

Bram Co should recognise the $200,000 as an asset because receipt is virtually certain, and only disclose the $50,000 as a contingent asset because the inflow is merely probable. IAS 37 permits recognition of assets only when realisation is virtually certain.

  1. ARecognise $200,000 as an asset and disclose the $50,000 as a contingent assetCorrect
  2. BRecognise both $250,000 as assets
  3. CDisclose the $200,000 as a contingent asset and recognise $50,000
  4. DDisclose both amounts as contingent assets and recognise neither

Explanation

Where realisation is virtually certain, the asset is not contingent and is recognised. A probable inflow is a contingent asset, which is disclosed in the notes but not recognised. Recognising the probable $50,000 would breach prudence.

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