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Chapter 5 Privision and Contingent Liabilities Lawsuit Example Question

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Chapter 5 Privision and Contingent Liabilities Lawsuit Example Question

  • This topic has 0 replies, 1 voice, and was last updated 5 years ago by tkhue3296.
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  • Author
    Posts
  • August 24, 2020 at 9:01 am #581726
    tkhue3296
    Participant
    • Topics: 1
    • Replies: 3
    • ☆

    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 .

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    Posts
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