Problem 4-33 Multiple choice

1. Which is the correct definition of a provision?

a. A possible obligation arising from past events
b. A liability of uncertain timing or uncertain amount
c. A liability which cannot be easily measured d. An obligation to transfer funds to
an entity

2. A provision shall be recognized when

a. An entity has a present obligation as a result of a past event.
b. It is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation.
c. The amount of the obligation can be measured reliably
d. All of these are required for the recognition of a provision.

3. A legal obligation is an obligation that is derived from all of the following, except
a. Legislation
b. A contract
c. Other operation of law
d. An established pattern of practice

4. A constructive obligation is an obligation

I. That is derived from an entity's action that the entity will accept certain responsibilities
because of past practice or published policy.

II. The entity has created a valid expectation in other parties that it will discharge those
responsibilities
a. I only b. II only c. Both I and II d. Either I or II

5. It is an event that creates a legal or constructive obligation because the entity has no
other realistic alternative but to settle the obligation.
a. Obligation event b. Past event c. Subsequent event d. Current event

6. An outflow of resources embodying economic benefits is regarded as "probable"

when
a. The probability that the event will occur is greater than the probability that the
event will not occur.
b. The probability that the event will not occur is greater than the probability that the
event will occur.
c. The probability that the event will occur is the same as the probability that the
event will not occur.
d. The probability that the event will occur is 90% likely.
7. Where there is a continuous range of possible outcomes, and each point in that
range is as likely as any other, the range to be used is the
a. Minimum
b. Maximum
c. Midpoint
d. Summation of the minimum and maximum

8. When the provision involves a large population of items, the estimate of the amount
a. Reflects the weighting of all possible outcomes by their associated probabilities.
b. Is determined as the individual most likely outcome.
c. May be the individual most likely outcome adjusted for the effect of other possible
outcomes.
d. Midpoint of the possible outcomes.

9. When the provision arises from a single obligation, the estimate of the amount
a. Reflects the weighting of all possible out their associated probabilities.
b. Is determined as the individual most likely on
c. Is the individual most likely outcome adjusted for the effect of other possible
outcomes.
d. Midpoint of the possible outcomes.

10. Which statement is incorrect when the expenditure required to settle a provision is
expected to be reimburse by another party?
a. The reimbursement shall be recognized only when it is virtually certain that the
reimbursement will be received if the entity settles the obligation.
b. The amount of the reimbursement shall not exceed the amount of the provision.
c. The reimbursement shall be "netted" against the estimated liability for the
provision.
d. In the income statement, the expense relating to the provision may be presented
net of the reimbursement.