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I asked you earlier. I am sorry but i could not find them in your lecture on IAS 37…
Could u pls answer them 🙂
1) Are there any T-account entries for both contingent liability and contingent asset?
2) Please explain how do we estimate the provision and contingent liability.
3) How IAS 37 is related with IAS 10?
4) You said if accidents happened before the year-end then they are provisions. And if accidents happened after the year-end then they are contingent liability.
Then how do we relate them with IAS 10 events after the reporting period?
5) Since contingent liability happened after the year-end so it should be disclosed according to IAS 10 because this event happened after the end of the year.
6) BUT provisions happened before the year-end so it should not related with IAS 10 because this event was already adjusted in the financial statement.
1. As is stated in Chapter 5 of the notes unless the rules require them to recognised in the accounts they are not recognised and therefore there are no double entries. If they are to be recognised then the entries are as for accruals or prepayments.
2. In the exam you are told. In real life you take professional advice.
3 to 6. As again is explained in Chapter 5, Provisions are recognised in the accounts (subject to the rules). Contingent liabilities are not recognised. This exactly fits in with IAS 10.
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Sorry to ask last two questions again because they were not cleared to me.
1) I understood that contingent liability and contingent asset are not recognised rather they should be disclosed but you said ‘If they are to be recognised then the entries are as for accruals or prepayments’.
What do u mean by that! IF they cannot be recognised by the rules then how can we recognised their entries as for prepayment and accrual?
2) IAS 10 takes into account only those events which happen after the reporting period so according to this only the contingent liability comes under this standard because contingent liability relates to the events happened after the year-end. (True?)
3) And the provisions are out of the IAS 10 standard because they relates to the events that happened before year-end whereas the IAS 10 deals with events that happened after the year-end. (True?)
‘Contingent’ means that it is not certain whether or not there will be a liability.
As is made clear in the notes, then if whatever gave rise to the contingency happened after the reporting date, then the liability is not recognised.
Whereas if whatever gave rise to the contingency happened before the reporting date then it is treated as a provision and the rules about provisions apply (i.e. depending on the probability of there being a liability).
This complies completely with Its 10.
Q39:Inspire is the defendant in a patent infringement lawsuit. Inspire?s lawyers believe the there is
a 30% chance that the court will dismiss the case and Inspire will not have to make any payout. However, if the court rules in favour of the claimant, they believe that there is a 20%
chance that Inspire will be required to pay damages of $200,000 (the amount sought by the
claimant) and an 80% chance that damages will be $100,000 (the amount that was recently
awarded by the same judge in a similar case). The court is expected to rule sometime in 2013
and there is no indication that the claimant will settle out of court.
What is the best estimate of the provision for the lawsuit that should be recognised in
Inspire?s statement of financial position at 31 December 2014 in accordance with
IAS 37?
A $50,000
B $100,000
C $120,000
D $200,000
Sir i am not able to understand the solution of this question
Kindly help
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