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PLEASE HELP ON IAS 37 PROVISIONS

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › PLEASE HELP ON IAS 37 PROVISIONS

  • This topic has 3 replies, 2 voices, and was last updated 3 months ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 2, 2025 at 4:01 pm #716447
    Tsagid
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    Please help me out on this provision question
    Sebastian Co is currently involved in four legal cases, all of them
    unrelated.
    ? In Case A, Sebastian Co is suing a supplier for $100,000.
    ? In Case B, Sebastian Co is suing a professional adviser for
    $200,000.
    ? In Case C, Sebastian Co is being sued by a customer for
    $300,000.
    ? In Case D, Sebastian Co is being sued by an investor for
    $400,000.
    Sebastian Co has been advised by its lawyers that the probabilities of
    success in each case are as follows:
    Case Likelihood of Sebastian Co winning the case
    A 10%
    B 90%
    C 98%
    D 60%
    State the accounting treatment for each of the four cases

    My solution:
    A : Sebastian Co should not recognize nor disclose as the contingent gain is possible.
    B: Sebastian Co should disclose a contingent asset as the contingent gain is probable.
    C: Sebastian Co should ignore since the transfer of the economic resources is remote.
    D: Sebastian Co should disclose a contingent liability as the transfer of economic resources is possible.

    > 95% is virtually certain
    51%-95% is probable
    5% to 50% is probable
    < 5% is remote.

    April 2, 2025 at 4:04 pm #716448
    Tsagid
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    Please pardon me
    5% to 50% is possible

    April 8, 2025 at 5:54 pm #716514
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    A is correct as it is remote, so we do nothing. B is correct as the asset is probable, and not virtually certain.

    C is incorrect as we would recognise a provision as it is probable.

    D is incorrect too as we would also recognise a provision as it is probable.

    Thanks,

    April 8, 2025 at 5:54 pm #716515
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    A is correct as it is remote, so we do nothing. B is correct as the asset is probable, and not virtually certain.

    C is incorrect as we would recognise a provision as it is probable.

    D is incorrect too as we would also recognise a provision as it is probable.

    Thanks,

  • Author
    Posts
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