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PROVISIONS

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › PROVISIONS

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • September 27, 2022 at 7:04 pm #667413
    Eunice03
    Participant
    • Topics: 88
    • Replies: 70
    • ☆☆

    141 Fauberg owns a number of offices in country Y and is in the process of finishing its financial
    statements for the year ended 31 December 20X4. In December 20X4, country Y announced
    changes to health and safety regulations, meaning that Fauberg’s air conditioning units will
    have to be replaced by 30 June 20X5.
    This is estimated to cost Fauberg $500,000. Fauberg has a history of compliance with
    regulations and intends to do the work by June 20X5.
    Which of the conditions for a provision will be met at 31 December 20X4?
    Yes/No
    There is a present obligation from a past event
    A reliable estimate can be made
    There is a probable outflow of economic benefits
    ANS
    There is a present obligation from a past event No
    A reliable estimate can be made Yes
    There is a probable outflow of economic benefits Yes
    Whilst there is an estimate of $500,000 and it is probable that Faubourg will make the
    changes, there is no present obligation at 31 December 20X4.

    Good day,Pls i don’t understand why there is no present obligation since it was said in the question that Fauberg has a history of compliance with regulations which is a constructive obligation.I’ll appreciate if you can explain better.

    September 28, 2022 at 8:53 pm #667485
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    Although there is a new legal requirement the company can still decide to break the law and hence therefore there is no obligation to pay the $500,000. They may have to provide for the fines in this instance.

    Keep an eye out for this one as it is the one that catches a lot of people out as they automatically see legal obligation and provide.

    Thanks

  • Author
    Posts
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