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For any others that were confused by the explanation for the measurement of the provision. I had to look up the definitions from IASplus website( I hope it’s OK to quote here)
“Provisions for one-off events (restructuring, environmental clean-up, settlement of a lawsuit) are measured at the most likely amount. [IAS 37.40]
Provisions for large populations of events (warranties, customer refunds) are measured at a probability-weighted expected value. [IAS 37.39]”
This states that for multiple events we need weighted average. It seems that for one off event we take the outcome with highest probability.
hi sir ,
in case i have a constructive obligation , for cleaning of $4000 every 5years . when i am creating my oil company on 31/12/2021 how can record the provisions in the SFP ? (ignoring the interest rate)
DR ????
CR Provisions 4000
Assume that: 5% implicit rate and the double entry is:
Y0: DR: Operating expense (if this expense relation to asset then DR: Assets, eg: dismantling) (4000$ discounted @PV)
CR: Provision
Y1: DR: Finance cost (5%* Operating expense in Y0)
CR: Provision (increase)
….
Y5: DR: Finance cost
CR: Provision
and when paid cash:
DR: Provision
CR: Bank
Why are we making provision of £15m and not only £6m being the maximum constructive obligation.As these are 3 different scenarios and is it correct to make provision for all 3? Slightly confused.
Thanks
I get there are 3 different projects in this question probably that’s why we are doing £15 m provision but what if there was one project with 3 different scenarios having 3 different costs?
why did you take $6m as a provisions? it’s a future operating loss and thus couldn’t meet the definition of IAS 37. can you please explain this?
Because there is a constructive obligation to clean
being honest
your very first few lectures were understandable. However, but now it seems like I am not getting anything you saying and kinda confusing to me as well
I think if possible if you can make it more easier to understand then it would be really helpful.
because these topics are crucial and we need to understand all these in a simpler form.
Still not updated for contingent assets? 🙁
The diagram was correct