IAS 37 – Best estimate – ACCA Financial Reporting (FR)
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Hello Chris,
i don’t understand how you arrived at $40,000
According to my understanding, Chris said this case’s outflow is probable so you need provision. and then you need to determine the amount for provision.
The highest percent is the best estimate so $40,000 is recorded
This is for the large population example?
I think it would be easy to follow it.
The company expects to pay for any faults with the cars they sell. thus there is a provision for them.
80% of the cars will have zero faults, so there is zero provision for them.
if all the cars they sold needed minor repairs, it would cost 100,000. Since they expect only 15% of the cars to have minor repairs, they will have a provision of 15% x 100,000 (15,000)
Similarly for major repairs, all the cars would cost 500,000. and since they expect only 5% of these to come, they will have a provision of 5% x 500,000 (25,000)
Adding the three together (0+15,000+25,000) gets the best estimate for the provision which is 40,000
how can i get the study text
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