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Fanberg owns a number of offices in country Y and is in process of finishing its financial statements for Y/E 31 dec 20×4. In Dec 20×4 country Y announced changes to health and saftey regulations meaning that Fanberg air conditioning units will have to be replaced by 30 june 20×5.
This is estimated to cost Fanberg $500000. Fanberg has history of compliance with regulations and intends to do work by June 20×5
Which of the conditions for a provision will be met at 31 dec 20×4
Sir, here present obligation is there, reliable estimate has been made. But how would we know that there are probable chances of outflow of economic benefits?
Hi,
I thought that from your earlier post that you were going to be a it more sincere in your postings? A please would go a long way to getting this query answered.
Thanks
Sir in the above question the only thing which is confusing me is that how do we know that there are probable chances of outflow of economic benefits here?
Ah, finally some sincerity!
At the reporting date the company does not have to have fitted the smoke alarms as they have until June to do so, so they are not obliged to do so now, so there is no provision as it is a future obligation. If at the end of June they have not fitted them then they have broken the law and so will have to provide for any fines of not having fitted the smoke alarms.
Thanks
Ok thanks. But how would we know that there are probable chances of outflow of economic benefits from the above scenerio?
If you are breaking the law by not fitting the smoke filters then there is a probable chance of being caught by the authorities. I’d try not to over think this as this is a specific example as given as per IAS 37.
Thanks
Ok and as it is mentioned that Fanberg has history of compliance with regulations, so does this phrase also indicates that there are probable chances?
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