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provision v/s liability

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › provision v/s liability

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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  • May 24, 2021 at 1:44 pm #621622
    Noah098
    • Topics: 936
    • Replies: 352
    • ☆☆☆☆☆

    march 2020 Ecoma Co. Q4b)i)

    sir in this question am struggling to understand why $6m+$6m/1.05, cannot be recorded as our current liability? the payment is virtually certain, so why not record it as a liability?

    We create provision when it is probable that there will be an outflow of economic resources, but here the rent payment is virtually certain so should not it be recorded as a liability?

    May 24, 2021 at 1:46 pm #621623
    Noah098
    • Topics: 936
    • Replies: 352
    • ☆☆☆☆☆

    forget the aspect of the contract being onerous, i am struggling to understand simply why not a liability and why specifically a provision?

    May 25, 2021 at 10:36 am #621731
    Stephen Widberg
    Moderator
    • Topics: 10
    • Replies: 2524
    • ☆☆☆☆☆

    A provision IS a liability – it’s just that it is uncertain in timing or amount.

    Whether you call it provision or liability is a judgement call. If it’s touch and go both answers would be marked right.

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