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ACCA Applied Skills · Financial Reporting · Provisions and events after the reporting period

Which of the following best describes the amount that IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires an entity to recognise as a provision?

A provision is measured at the best estimate of the expenditure needed to settle the present obligation at the end of the reporting period. It is not the minimum or maximum possible outcome, nor a budgeted or preferred amount chosen by management.

  1. AThe best estimate of the expenditure required to settle the present obligation at the end of the reporting periodCorrect
  2. BThe lowest possible amount that could settle the obligation
  3. CThe highest possible amount that could settle the obligation
  4. DThe amount the entity would prefer to pay, based on management's budget

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 possible amount is not the required basis, and management's preference or budget is irrelevant to measurement.

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