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CHAPTER 31

SMEs Provisions and Contingencies





I. Recognition of Provisions




II. Created by

III. Initial Measurement






IV. Subsequent measurement
Changes in Provision



PFRS for SMEs

Recognized provision only when:
1. There is a present obligation as a
result of past event.
2. An outflow of economic benefits is
probable.
3. The amount of the obligation can be
estimated reliably.

1. Contract or law
2. Constructive obligation

Measured at the best estimate.
1. Most likely outcome single
obligation
2. Midpoint continuous range of
possible outcomes
3. Weighting of all possible outcomes
involves large population of items
4. Present value effect of time value
of money is material


Review at each reporting date and
adjust to reflect the current best
estimate.

Full PFRS

Same







Same




Same










Same













Use of Provision



V. Other measurement considerations
Risk specific to the liability




Expected disposal of assets


Reimbursement







Recognize adjustment:
1. in profit or loss
2. as cost of an asset - if the
amount of provision is originally
recognized as part of the cost of
an asset
3. as a finance cost if provision is
measured at the present value
of the amount required to settle
the obligation

Should be charged only for expenditures
for which the provision is originally
recognized.


Should be reflected either in the
discount rate or in the estimation of the
amount required to settle the obligation
but not both.

Exclude gain from the measurement of
provision

Recognized as an asset when it is
virtually certain that the entity will
receive the reimbursement.
The amount shall not exceed the
amount of provision.


Same










Same




Same




Same


Same


Same










VI. Must accrue:
Onerous contract
Warranties
Restructuring if legal or
constructive obligation to
restructure
Sales refunds

VII. Must not accrue:
Future operating losses, no matter
how probable
Possible future restructuring (only a
plan)

VIII. Contingent Liabilities
Not recognized as liabilities
Disclosure
No disclosure
Impracticable to disclose

IX. Contingent Assets
Not recognized as an asset
Disclosure

Shall be presented as an asset and shall
not be offset against the estimated
liability for provision.
May be offset against the expense
relating to the provision.
















Unless acquired in a business combination

If possibility is remote
State such fact



Required, inflow of economic benefit is
probable

Same


Same



















Same
Same


Same



Recognized as an asset

No disclosure
Impracticable to disclose




























If inflow of economic benefits is virtually
certain
If remote
State such fact




























Same

Same
Same