I have only little knowled about Accounting,
I might ask in a unprofessional way .
My understanding of Provision :
it must fulfil 3 criterials
1. it is a present obligation as a result of past event ( Taxation )
2. it must be a probable outfolw of economic benefit
3. it has a reliable measurement of the outflow ( From Experts)
And it is a liabilities thtat inevitable,
the uncertainties are time and amount of money to pay.
My understanding of Contingent Liabilities and Contingent Assets :
Contingent Liabilities is we got sue by someone,
and we might or might not pay money .
Contingent Assets is we sue someone,
We might or might not get money .
Scenario:
Let say our end of year is on 31 Dec 2020 .
A worker injured on 25th Dec 2020 , and he clam for $5000 ,
Q1:
What if the worker brings it to court after 31 Dec 2020?
will it still be considered a Provsion ?
if Yes, which year should we include this provision ?
if No, how is that work ?
Q2:
What is the different if the worker only claim compensation but doesn't bring it to court ?
How does it affect whether it is recognized in the financal statements ?
Q3:
what if the lawyer tell me the worker is less than 5% to win the court ( Remote ),
but the money he claim is a probable to pay ( >50% likely)?
is that means it won't be a present obligation and we do nothing ?
Q4:
what if the lawyer say the worker has a high chance to win the court ( Probable => 50% ),
but the money he claims is a remote (< 5%) ?
Q5:
What situation i have to raise the Contingent Liabilities to Provision ?
is it both the winning chance of the worker and money claim fall on probable ?
Q6:
What if the case didn't fulfil 1 of the 3 criterials of the Provision?
No reliable estimation or
Not a present obligation or
Not a probable outflow of economic benefit ?
Sorry if the question and scenario seems unclear,
i have given my best to structure my questions ,
I really confused about these concepts .
Appreciate .