Exam 8: Provisions, Contingent Liabilities and Contingent Assets

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?

For each class of provision, an entity is required under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, 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.

The June 2005 exposure draft issued in relation to proposed changes to AASB 137:

Purcell Limited is a manufacturer of swimming pools and provides its customers with warranties at the time of sale. The warranty applies for three years from the date of sale. Past experience shows that there will be some claims under the warranties. The appropriate treatment of this item under AASB 137 Provisions, Contingent Liabilities and Contingent Assets is to:

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.

An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

In respect to a contingent liability, AASB 137 Provisions, Contingent Liabilities and Contingent Assets, requires disclosure of: