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CHAPTER 31

SMEs Provisions and Contingencies

Recognized provision only when:


1. There is a present obligation
I. Recognition of Provisions as a result of past event.
2. An outflow of economic
benefits is probable.
3. The amount of the obligation
can be estimated reliably.
Same
1. Contract or law
2. Constructive obligation
II. Created by
Measured at the best estimate.
1. Most likely outcome single Same
III. Initial Measurement 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

IV. Subsequent measurement Review at each reporting date Same


Changes in Provision and adjust to reflect the
current best estimate.

Full PFRS
PFRS for SMEs
Same
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
Use of Provision Same
Should be charged only for
expenditures for which the
provision is originally
V. Other measurement considerations recognized. Same
Risk specific to the liability

Should be reflected either in


the discount rate or in the
Same
estimation of the amount
Expected disposal of assets required to settle the obligation
but not both.
Same

Reimbursement Exclude gain from the


measurement of provision Same

Recognized as an asset when it


is virtually certain that the
entity will receive the
reimbursement.
The amount shall not exceed
Recognize adjustment: the amount of provision.
1. in profit or loss
2. as cost of an asset - if the
Same
amount of provision is VI. Must accrue:
originally recognized as 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 Unless acquired in a business
Disclosure combination Same
No disclosure
Impracticable to If possibility is remote Same
disclose
State such fact

IX. Contingent Assets


Not recognized as an Same
asset
Disclosure Required, inflow of economic
benefit is probable
Shall be presented as an asset Recognized as an asset
and shall not be offset against Same
No disclosure
the estimated liability for
Impracticable to
provision.
May be offset against the Same disclose
expense relating to the
provision.


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

Same

Same
Same