SBRIAS 37

Colleagues; Provision should only be recognized when: there is a present obligation; transfer of the company's economic benefits to settle claim and there is a reliable estimate. The situation in the case: At the company's financial reporting date - it's probability that it will have to pay 12 million; therefore, information from the legal team should be use to satisfy the criteria of the standards. There are valid ground - seriously injured on the job and bring the obligation to pay for damages - estimated at 12 millions. This will result in an outflow of the company's resources - economic value - deteriorating finance as an expense which was never budgeted. Liability increase - Cr Provisions with the amount and Dr the corresponding expense. Note that it must relate to the corresponding financial year only - April to March 2015 for example; it must be accounted in the SoFP. Providing that the company has received the claim - Lawyers advice; it MUST on June 30, 2015 show the entries in the SoFP. It is obvious that this claim will be settled in another financial year - Crediting method of payment - bank using a cheque as evidence (receipt) and clear the provision with a debiting entry of the amount.

Just reading through this and I was wondering if there is an obligation at the year end of 30th June? The employee did not file a claim until end July. So in June there was no legal requirement (although ethically you could argue a point) and no figure provided by the lawyers. But as it was a serious accident, it would be prudent to presume some compensation would be required. Maybe I am just over thinking this? But I can be forgiven for that as it draws closer to the exams..... :)

The financial statements for 2015 - 30 June should show the actions of the company during its reporting year - ALL. The event took place before the financial year and the claim was filed July 2015. There is an obligation at year end - it is probable for success, measurable with an outflow of resources. This is testing for IAS 37 and IAS 10; it is an adjusting event.

An adjusting event. That makes sense now. Thank you

so it's not 60%x12 + 40%x8=10.4, Dr P or L Cr provision? Instead we only take 12 into account as the amount with highest probability? what about 50% 50%?

Disclose by - notes to the financial statements; remember, the steps for creating a provision - probable which is more than the 50%; say 51. Anything else we must disclose by note or ignore. I have learn in the early stage of accounting - provision are probable greater than fifty percent.