FA Chapter 5 Questions IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
65 Comments
G
grace·
I am still misunderstanding although doing deep learning this chapter. only got 25%, the worst ever.
P
Parthiv·
Question 4
Hi, I havent got a question but wanted to get clarification on Q4.
The Lawyer said that the possibility for an economic outflow is 60%. That then makes this probable so a provision will need to be created and the relevent exp account debited 100,000.
For the lawyer fee. This is an estimate based off what they said so that is an accrual created for 10,000. Dr legal fees exp & Cr accruals.
Can you confirm my understanding is correct? Thanks
J
John MoffatTutor·
Correct :-)
E
Elizabeth·
correct
R
Rana Waleed·
100 percent great
M
M·
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?
J
John MoffatTutor·
60% means that it is probably and therefore we make a provision
S
Sonaya·
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"?
J
John MoffatTutor·
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.
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sandesh·
Why to provide for 110000 and not 60% of 100000 + 10000 ?
J
John MoffatTutor·
Because the payment is probable (i.e. the chances are more than 50%).
Did you watch the free lecture before attempting the test?
J
jahedul·
yes probable... so need a provision for 100000 and lawyer exp is certain . there is no correct ans . all ans are wrong
J
James·
Here, 60% is the probability of having to pay the 100,000 in damages not 60% of 100,000.
J
John MoffatTutor·
The answer given is correct
S
Syed Daniyal·
Got 75% :)
C
Chiluba·
Question 2:
Why is item 1 considered virtually certain?
Why is item 2 disclosed by note only and not treated as a provision?
J
John MoffatTutor·
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.
A
Ademilola·
but i believed virtually certain was used for asset not liabilities to be incurred,, that means they are probable
J
John MoffatTutor·
So? That means that we make a provision.
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Wasim·
Got 75% .nice
T
Toby·
got 75%
J
Joseph Acca·
Thanks Mr. John Moffat.
I got 100%
J
John MoffatTutor·
:-)
L
Linh Pham·
I got 100%. Thank you so much!
T
Tiger Magg·
Hello I'm from South Africa doing B.com Accounting 3rd year, Your videos are really helpful for a quick recap of the topics
thank you so much and I manage to score 100% on the quiz good
H
Hannah·
Hie can u pliz explain question 3
Thank u in advance ?
J
John MoffatTutor·
Given that it is probable that they will have to pay $3,000 then they have to provide $3,000 as explained in the free lectures.
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Alice·
This time I got 75%. am happy
S
Salah·
LOVE IT!! I love the fact that you have included a tricky question! You are an absolute gem! You know that the material is good when you feel bad that it's free!
thank you
J
John MoffatTutor·
Thank you for your comment :-)
H
Haafil·
This helped me a lot in my ACCA carrier. Thank You...
M
Maxamed·
I score 75% I can do forward, thank you supporting.
A
Asif·
The 6% statistics and warranty question was a tricky one indeed !
J
John MoffatTutor·
:-)
E
elaine·
Hi, I'm not really understand this question.
For item1, its stated : The company gives warranties on its products. Means, its would category as "Contingent Asset".
I don't understand why it is Virtually Certain. I'm not understand the following sentences very well.
For item2. I'm also not understand the whole sentences very well.
Could you please help/ assist me on this?
Thanks you.
J
John MoffatTutor·
I am not sure which question you are referring to.
However a warrant is the same as a guarantee. So it will be a liability and not an asset. It is virtually certain that there will be some claims on the warranty (completely separate from what % of claims there will be).
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Sherry Ann·
Thank you
R
Rithul·
SUCH A HELPFUL PLATFORM ,SPREAD THE SITE?
R
Ramil·
Very happy to find a source like this. Thank you!
J
John MoffatTutor·
You are welcome :-)
Z
ziarahmanzai1999·
The one thing is everyone confused and even I was confused about it was the 60%. This 60% is the chances that the company will pay the 100,000 not the 60% of 100,000. So
100,000 +10,000 = 110,000
J
John MoffatTutor·
'Everyone' is not confused. If you have watched the free lectures first, then there is nothing to be confused about (and the wording of the question is copied from real exam questions).
S
sarahshiku09·
Open tuition is soon helpful,thanks am getng challenged now after this questions,thanks
J
John MoffatTutor·
Thank you for your comment :-)
A
Abdi·
in question 4 thought the $100,000 of the customer claim and the $10,000 of the lawyers fee to be contingent liability, why is it an expense?
J
John MoffatTutor·
The $100,000 is probable (between 50 and 95%) and is therefore provided for as an expense.
The $10,000 is certain and therefore is again provided for as an expense.
Did you watch the free lectures on this before attempting the test? :-)
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shujaattt·
Please explain why it is expense and not a liability?
J
John MoffatTutor·
It is a liability - that is what 'provide' means!
Just like an accrual, it appears as an expense in the SOPL and a liability in the SOFP.
Have you watched the free lectures?
N
nazarat·
I am confuse about provisions.
If there is present obligation e.g any court case as a result of past event and reliable estimate can be made. And lawyers tell that it is likely that opponent will win case and bussiness is likely to pay estimated amount?
What should we do?
J
John MoffatTutor·
I explain this in my free lectures! It is a contingent liability and if it is 'probable' then they will provide for the liability.
N
nazarat·
I am confuse about provisions.
If there is present obligation e.g any court case as a result of past event and reliable estimate can be made. And lawyers tell that it is likely that opponent will win case and bussineaa is likely to pay estimated amount?
What should we do?
X
Xiiao·
In question 2, item 1 the company gives warranties on its products. The company's statistics shows that about 6% of sales give rise to a warranty claim.
I don't understand why the answer will be virtually certain but not possible?
The company << it is stand for company Q or another company?
I am a bit confusing
Thanks you
T
therfc·
Essentially, the statistics suggest that around 6% of sales will give rise to a warranty claim, not that there is a 6% likelihood that there will be a warranty claim.
J
John MoffatTutor·
What Roger has written is correct.
It is virtually certain that there will be warranty claims - in the past there always have been warranty claims (about 6% of the sales result in warranty claims). The only relevance of the 6% would be in calculating how much the likely claims would be this year (but that is not asked for) :-)
M
Michael·
If it's virtually certain then shouldn't I just include it in liabilities, rather than disclosing a note?
M
Michael·
Disregard that. That was the answer. I clicked the wrong button.
J
John MoffatTutor·
No problem :-)
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samire·
? hope that in finally F3 exam will do all the questions as I do here.Thanks being helpful and by providing that site
J
John MoffatTutor·
Do make sure you do lots of practice - you should buy a Revision Kit from one of the ACCA approved publishers because they have lots of exam-standard questions to practice on.
H
Honey·
In question 3, provision was made as the lawer advice,
In Q 4, i am confuse at provision,
Please explain me Q4, Thx
J
John MoffatTutor·
The probability of have to pay is 60% so the need to provide for 100,000.
In addition they will have to pay the lawyers fees of 10,000.
So a total of 110,000
E
eetiraccakus·
In question 3 , provision of 3000 is created what about the other 2000 ? should that be disclosed in a note ?
J
John MoffatTutor·
Yes it would.
O
oneilarmstrong·
Making this much simpler with these lectures and questions. I am beginning to feel very excited about this study open. OPEN TUITION!!!!
Hi, I havent got a question but wanted to get clarification on Q4.
The Lawyer said that the possibility for an economic outflow is 60%. That then makes this probable so a provision will need to be created and the relevent exp account debited 100,000.
For the lawyer fee. This is an estimate based off what they said so that is an accrual created for 10,000. Dr legal fees exp & Cr accruals.
Can you confirm my understanding is correct? Thanks
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"?
Did you watch the free lecture before attempting the test?
Why is item 1 considered virtually certain?
Why is item 2 disclosed by note only and not treated as a provision?
2. It is only possible that they might have to pay. The might not have to pay anything.
I got 100%
thank you so much and I manage to score 100% on the quiz good
Thank u in advance ?
thank you
For item1, its stated : The company gives warranties on its products. Means, its would category as "Contingent Asset".
I don't understand why it is Virtually Certain. I'm not understand the following sentences very well.
For item2. I'm also not understand the whole sentences very well.
Could you please help/ assist me on this?
Thanks you.
However a warrant is the same as a guarantee. So it will be a liability and not an asset. It is virtually certain that there will be some claims on the warranty (completely separate from what % of claims there will be).
100,000 +10,000 = 110,000
The $10,000 is certain and therefore is again provided for as an expense.
Did you watch the free lectures on this before attempting the test? :-)
Just like an accrual, it appears as an expense in the SOPL and a liability in the SOFP.
Have you watched the free lectures?
If there is present obligation e.g any court case as a result of past event and reliable estimate can be made. And lawyers tell that it is likely that opponent will win case and bussiness is likely to pay estimated amount?
What should we do?
If there is present obligation e.g any court case as a result of past event and reliable estimate can be made. And lawyers tell that it is likely that opponent will win case and bussineaa is likely to pay estimated amount?
What should we do?
I don't understand why the answer will be virtually certain but not possible?
The company << it is stand for company Q or another company?
I am a bit confusing
Thanks you
It is virtually certain that there will be warranty claims - in the past there always have been warranty claims (about 6% of the sales result in warranty claims). The only relevance of the 6% would be in calculating how much the likely claims would be this year (but that is not asked for) :-)
In Q 4, i am confuse at provision,
Please explain me Q4, Thx
In addition they will have to pay the lawyers fees of 10,000.
So a total of 110,000