Exam 5: Provisions, Contingent Liabilities and Contingent Assets

The following is statement made in IAS 37: 'a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it'. This statement provides a definition of:

The uncertainty that exists in relation to provisions is one of:

The costs under an onerous contract are measured using which valuation method?

An entity sells goods under warranty and past experience shows that minor defects account for 10% of sales and major defects account for 2% of sales. If all minor defects were repaired the warranty cost would be €300 000, and if all major defects were repaired the warranty cost would be €800 000. The expected value of the warranty cost is:

A contingent liability is defined as a: I II III IV possible obligation that arises from past Yes Nes No No events possible obligation whose existence will be Yes No Yes No confirmed by the occurrence of an uncertain future event

Provisions shall be recognised when: I an entity has a present obligation II it is possible that an outflow of resources will be required to settle the obligation III the amount of the obligation can be reliably estimated IV there has been a past event

The June 2005 exposure draft issued in relation to IAS 37 proposed changes to: I $\quad$ the name of the standard II $\quad$ recognition and measurement criteria III $\quad$ the definition of contingencies IV $\quad$ the method of disclosure for provisions

An example of where an entity has a present obligation is:

The June 2005 Exposure Draft issued in relation to proposed changes to IAS 37:

McCann Limited announced its plans for a major restructuring of its operations. Under IAS 37, the entity is able to:

JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations would be as follows: In 1 year $40 000 In 2 years $50 000 In 3 years $60 000. A government rate for bonds with similar terms is 6%. What is the present value of the total expected future cash outflow?

Which of the following statements is correct?

Liabilities which fail the recognition criteria and where the possibility of an outflow is remote should:

A railway company is required, under law, to overhaul its rail-tracks every three years as a safety measure. The appropriate treatment of this event for the purposes of preparing financial statements is:

Which of the following is an example of a provision falling within the scope of IAS 37?

In respect to a contingent liability, IAS 37 requires disclosure of

For each class of provision, an entity is required by IAS 37 to disclose the following information: I The carrying amount at the beginning and end of the period. II Amounts incurred and charged against the provision during the period. III Comparative information. IV Unused amounts reversed during the period. V Additional provisions made during the period.

According to IAS 37, the appropriate accounting treatment for future operating losses is to:

Contingent liabilities are:

Entities are not required to disclose which of the following in relation to provisions?