Summary Provisions and Contingent Liabilities IAS 37

Provisions, Contingent
Liabilities and Assets
Definition of a provision

 A liability where the timing and amount of settlement are uncertain

Recognition and Measurement

 A provision is recognised if the following are present
 A legal obligation existing at the reporting date because of a past event
 More likely than not that settlement will cause an outflow of cash
 A reliable estimate can be made
Journals: DR Expense CR Provision of Expense

Subsequent Measurement

 Review and if necessary make an adjustment at each reporting period

Derecognition

 A provision provides for only initially expected expenses. Excesses are
expensed, and surpluses must be reversed
 Expense > Provision: DR Expense DR Provision CR Bank
 Expense < Provision: DR Provision CR Expense CR Bank

Future Operating Losses

 No liability exists thus no provision can be raised

Presentation

 P/L expense and a line item on the SFP under liabilities

Disclosure

 Expense in profit before tax note
 A note to the financials
 Brief description of nature, detail of uncertainties over time and amount of
expense
 Reconciliation