Provisions

• Liability with an uncertain timing/amount

When shall provisions be recognized as liability?

• The entity has a present obligation arising from a past event

• Probable outflow
• Reliable measurement
How are provisions measured? – best estimate
Examples of provisions
1. Warranties
2. Environmental contamination
3. Decommissioning or abandonment cost
4. Court case
5. Guarantee

Contingent liability

• Possible obligation arising from past event whose existence will be confirmed only by the
occurrence or nonoccurrence of one or more uncertain future events not wholly within
the control of the entity
• Present obligation arising from past event, but it is neither probable nor reliably
measurable
Contingent liability vs provision

• Contingent liability – disclosed (except if remote)

• Provision – recognized as a liability
Contingent asset

• Possible asset that arises from past event whose existence will be confirmed only by the
occurrence or nonoccurrence of one or more uncertain future events not wholly within
the control of the entity.
• Treatment of contingent asset – disclosed only if probable

Notes:
More than 50% - probable
50% or less - possible
10% or less – Remote