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Still relating to BPP kit question 27 “Minco”
Again the answer is not that helpful.
Do I infer that the payment that is made to the tennis player for sponsorship on an annual basis if she has competed in all tournaments is a contingent liability, so disclosed only, until she satisfies the condition, at which point it is accrued?
So what then of the performance bonus if she wins a tournament? It says this is accrued when a tournament is one, which I infer means this is not a contingent liability – why not?
It feels like any agreed payment contingent on some future performance obligation is by definition a contingent liability…
To add to this question based on my current understanding:
Contingent liability (disclosed not recognised): possible obligation arising on some uncertain future event
Contingent payment (recognised as a financial liability at FV): possible payment depending on the future outcome of the condition
Eh? Wot they talkin’ abaht Willis? What’s the difference? No wonder I’m confused.
Is it that the contingent payment is a present obligation, albeit that the outcome is uncertain, where as the contingent liability is not yet an obligation but could be?
Seems a very fine line…Hi,
The annual sponsorship wouldn’t be a contingent liability as there is no past event that has taken place. The event is the taking part in the tournaments.
Similarly with the performance bonus, we cannot disclose it as there is no past event. The event is taking place in the future so no need to disclose, but it does fall under an executory contract and will be accrued when the tournament is won.
The difference between the contingent payment and liability you mention in the second point is that with the payment there is a contractual obligation that is the distinguishing feature. For a contingent liability there is not likely to be a contractual obligation in place.
I hope this clears up the confusion, if not then just shout.
Thanks
Hi,
Yes that does help – the past event element regarding contingent liabilities was not captured by me in my notes – that’ll teach me to copy and paste from Deloitte’s IASPlus.com web site! Credit to BPP, they did have it in the text book, just me short-cutting tusk tusk.
However I’m still a bit confused as follows:
The annual retainer to pay $50,000 provided she has competed in all the specified tournaments is a contractual obligation to deliver cash and so falls to be treated as a financial liability and is recognised in the SFP at its PV.
So then why isn’t the performance bonus the same? It is a contractual obligation to deliver cash whenever a tournament is won. Yet it is only accrued upon winning.
Why aren’t they both executory contracts as it seems in both something remains to be done by the other party?
Also I don’t remember reading about “executory contracts” in the text – is it mentioned in the standard?
Thanks
Hi,
I think the difference is very subtle in that the annual retainer is not related to a specific event, whereby the performance bonus is based on a specific event.
As to there being any detail in any texts, I don’t recall there being any. If executory contracts appear then it will likely be under IFRS 9 but if it is an onerous contract then it will be IAS 37.
Thanks
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