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I did not understand this completely in ur lecture.
If the accidents occurred before the end of the year but the court has not started the case yet then we need to record provision based on its probability (like below)
Probable >50% – Recognize as Provision
Possible 5-50% – Disclose as Provision
Remote – No recognition or disclosureBUT if the accidents occurred after the end of the year but the court has not started the case yet then we need to record contingent liability based on its probability (like below)
Virtually certain >95% – Record as liability
Probable >50% – Record as provision
Possible 5-50% – Disclose as contingent liability
Remote <5% – No record / No disclosureIs that all correct. If I’m wrong please correct me?
If the accident occurred before the year end that what you have written is correct.
If it occurred after the year end, then (like a non adjusting event) it is not shown in the financial statements but is just disclosed by way of note (unless the probability is less that 5% in which case it is not disclosed).
(See section 2 of Chapter 5 in our lectures notes.)I am confused!!! Let me rephrase them in points 🙂 Are they correct now sir?
1) If the accidents occurred before the end of the year but the court has not started the case yet then we need to record the provision based on its probability consider to be probable (>50%) as shown in the probability table below.
2) BUT if the accidents occurred after the end of the year but the court has not started the case yet then we need to disclose the provision based on its probability consider to be possible (5 – 50%) as shown in the probability table below.
3) BUT if the probability is remote (<5%) then we do nothing (not even disclosed!)
Probable >50% – Recognize as Provision
Possible 5-50% – Disclose as Provision
Remote <5% – No recognition or disclosure4) Is it true that probability table for provision is different from the probability table for contingent liability (because you have both in the notes!)?
You have not read my previous reply properly.
We only make a provision in the accounts for a contingent liability if the incident in question occurred before the end of the year. Then we use the table to decide whether to record it in the accounts or whether to just disclose it as a note or whether to show nothing.
If the incident occurred after the end of the year then we do not record it in the accounts as a provision but disclose it by way of a note if the probability is more than 5%.
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