IAS 37 Provisions, Contingent Liabilities and Contingent assets

Provision: is a liability where there is uncertainty over its timing or the amount at which it will be settled. A provision should be recognised where: i.e. established past practice

An entity has a present obligation (legal or constructive) as a result of a past event; It is probable that there will be an outflow of resources in the form of cash or other assets; and A reliable estimate can be made of the amount A provision should not be recognised in respect of future operating losses since there is no present obligation arising from a past event.

Contingent liability: arises where a past event may lead to an entity having a liability in the future but the financial impact of the event will only be confirmed by the outcome of some future event not wholly within the entitys control. - A contingent liability should be disclosed in the financial statements unless the possible outflow of the resources is thought to be remote. Contingent asset: is a potential asset that arises from past events but where existence can only be confirmed by the outcome of future events not wholly within an entitys control. - A contingent asset should be disclosed in the financial statements only when the expected inflow of economic benefits is probable. - However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate (DR Asset: Receivable, CR Other income)

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