Payables, provisions and

contingent liabilities
Chapter 12
Lecturer: Eliza Tigranyan

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 Overview

Liabilities

Obligation to transfer economic benefit as a result

of past transactions or events

Current vs non Liabilities of

- current uncertain timing
and amount

Provisions Contingent
liabilities

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Categorisation of liabilities

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 Cash and credit purchases

Cash purchases Credit purchases

• The business pays for the If the purchase is on credit
goods/services at the terms the business will pay
point of sale for the goods/services after
receiving them.
Dr Purchases/expenses Dr purchases/expenses
Cr Cash Cr Payables
When the liability is paid
Dr Payables
Cr Cash
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 Provisions

A provision can be defined as a liability of uncertain

timing or amount.

Accounting for a provision is done by estimating the

potential cost of the uncertain event and recognising it
immediately.

Dr Expense
Cr Provision liability

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 Recognition criteria IAS 37, Criteria for
recognising provision

 There must be a present obligation (legal or

constructive) that exists as the result of a past
event.

 There must be a probable transfer of economic

benefits.

 There must be a reliable estimate of the potential

cost.

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 Accounting for contingent liabilities and
assets
The requirements of IAS 37 as regards contingent liabilities and
assets are summarised in the following table:

Probability of Contingent Contingent asset

occurrence liabilities
Virtually certain Provide Recognise
> 95%
Probable Provide Disclosure in note
51% - 95%
Possible Disclose in a note Ignore
5% - 50%

Remote Ignore Ignore

<5%

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Contingent liabilities and assets

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Contingent liabilities and assets

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Accounting for contingent liabilities and
assets

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Accounting for contingent liabilities and
assets

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Movement in provisions

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 Summary

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 The end

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