NAME:

SECTION:

INSTRUCTION: Answer the following independent cases below using YES or NO. Each
problem is equivalent to 5 points.

NOTE: Use this pattern to answer each case.

 Is there a present obligation? (1 point)
 Is the outflow probable? (1 point)
 Can the outflow be measured reliably? (1 point)
 Should the provision recognize? Why or why not? (2 points)

CASE 1
ECQ Co. engages in transport services. Past experience shows that ECQ incurs
around P100M a year in accident-related lawsuits. Can ECQ accrue a year-end
provision for accident-related lawsuits that can happen in the next accounting
period?

CASE 2
ECQ Co. has put up a new branch during the year. The branch suffered loss of
P20M during the year. Past experience shows that newly put up branches incur
losses for the first three years of operations. Can ABC recognize a provision for
future losses on its new branch?

CASE 3
ECQ Co. engages in mining. During the year, ABC acquired rights to mine a
specific area. ECQ acquired an oil rig to be used in extracting the mineral
resource. Under existing laws, ECQ is required to dismantle the equipment at the
end of its useful life. As of year-end, the oil rig is yet to be installed.
Should ECQ recognize a provision for the decommissioning cost?

CASE 4
An entity in the oil industry causes contamination and operates in a country
where there is no environmental legislation. However, the entity has a widely
published environmental policy in which it undertakes to clean up all
contamination that it causes. The entity has a record of honoring this published
policy. The cleanup cost can be estimated reliably. Should the entity recognize a
provision?

CASE 5
ECQ Co. provides warranty for products sold. Past experience shows that
warranty costs can be reliably estimated. However, ECQ cannot identify which
customers may require ECQ to perform its warranty obligation. Should ECQ
nevertheless recognize a provision?