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ACCA Applied Knowledge · Financial Accounting · Provisions and contingencies

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which amount should be recognised as a provision when an entity has a present obligation that is probable to result in an outflow, and a reliable estimate can be made?

A provision is measured at the best estimate of the expenditure needed to settle the present obligation at the reporting date. It is not set at the lowest or highest possible outcome, and future operating losses are excluded because they do not create a present obligation.

  1. AThe best estimate of the expenditure required to settle the obligation at the reporting dateCorrect
  2. BThe lowest possible amount in the range of outcomes
  3. CThe highest possible amount in the range of outcomes
  4. DThe amount of future operating losses expected

Explanation

IAS 37 requires a provision to be measured at the best estimate of the expenditure required to settle the present obligation at the reporting date. Using the lowest or highest figure is not required. Future operating losses are never provided for because there is no present obligation.

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