FA Chapter 5 Questions IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
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100 percent great
Hi, in Q 3, Why did Sherley calculate provion as $3000 as a lawyer advised and June LTD did $ 100 000 as provision, but lawyer estimated as 60 % ($60 000). i think it is the same situation, right?
60% means that it is probably and therefore we make a provision
Question 2
For item 1, I’m still quite confused as to how and why 6% of sales can be a signal for us to make provisions. Is it related to its definition “…reliably estimated”?
If 6% of the sales give rise to a claim, then it is virtually certain that there will be warranty claims. So 6% is not the probability of there being claims, it is just the likely amount of the claims.
Why to provide for 110000 and not 60% of 100000 + 10000 ?
Because the payment is probable (i.e. the chances are more than 50%).
Did you watch the free lecture before attempting the test?
yes probable… so need a provision for 100000 and lawyer exp is certain . there is no correct ans . all ans are wrong
Here, 60% is the probability of having to pay the 100,000 in damages not 60% of 100,000.
The answer given is correct
Got 75% 🙂
Question 2:
Why is item 1 considered virtually certain?
Why is item 2 disclosed by note only and not treated as a provision?
1. It is virtually certain that there will be warranty claims. How much will be claimed is not sure (it will probably be around 6%) but there are virtually certain to be some claims whatever % it is.
2. It is only possible that they might have to pay. The might not have to pay anything.
but i believed virtually certain was used for asset not liabilities to be incurred,, that means they are probable
So? That means that we make a provision.
Got 75% .nice
got 75%
Thanks Mr. John Moffat.
I got 100%
🙂