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ACCA Applied Knowledge · Financial Accounting · Provisions and contingencies

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following sets out all the conditions that must be met before a provision is recognised?

A provision is recognised only when there is a present obligation arising from a past event, an outflow of economic benefits is probable, and the amount can be estimated reliably. Possible obligations or possible outflows lead only to disclosure as contingent liabilities.

  1. AA present obligation from a past event, a probable outflow of economic benefits, and a reliable estimate of the amountCorrect
  2. BA possible obligation from a past event, a probable outflow of economic benefits, and a reliable estimate of the amount
  3. CA present obligation from a past event, a possible outflow of economic benefits, and a reliable estimate of the amount
  4. DA present obligation from a future event, a probable outflow of economic benefits, and a reliable estimate of the amount

Explanation

IAS 37 requires a present obligation (legal or constructive) arising from a past event, a probable outflow of economic benefits, and a reliable estimate. A possible obligation or merely possible outflow gives only a contingent liability, and a future event cannot create a present obligation.

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