if a property lease includes requirement that the premises are repainted every five years and the future cost is estimated at $100,000. IAS 37 does not permit to recognise the provision as there is no obligation to incur this cost until the five years have elapsed.
my question.... 5yr has elapsed and they haven’t repainted the property yet,
at that time now it is a present obligation right.....so we will create provision by the estimated amount.
and later they repainted on 6th yr so the then cash paid will be adjust against the provision.Am i right sir.
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QUESTION
7y ago#1Hi,
When you repaint the property at the end of the five years then you would recognise the expense, and the payment would clear the liability created when it is paid. The liability would just be a standard payable and not a provision, as a provision is technically either an uncertain amount or timing, and here neither are uncertain.
Thanks
allright its clear.....so incase the amount if thats uncertain in above case....we cud have created the provision........since nothing is uncertain so just a standard liability.....and when they will actually pay the cash the liability will be sorted.....as i saw the word the amount is estimated so i thought provision to be created.....
7y ago#3Correct!
isnt word estimate creates a thinking of uncertain amount...
7y ago#5Possibly, but it still doesn't meet the definition of a provision at that initial date. When we get to the five years we know what the amount will be.
Thanks
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