Accounting And Management Essay

471 words - 2 pages


* Existing liability

* Uncertain timing or amount on future expenditure. (ito ang nagdidistuinguish)

* Liability still exist but the date due and amount is indefinite

* May equal to estimated liability or loss contingency (accrued because it is both probable and measurable)

Provision and other liabilities

* P; uncertain OL; certainty of timing and amount

Recognition of provision

* P shall be recognized in the FS under the ff. conditions

A. Present Obligation (legal or construtive) from past event

LO: arise from contract, legislation or other operation of law

CO: dervide from an entity’s action. When entity from established pattern of practice or stated policy has created a valid expectation that will accept certain responsibility.

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* Continuous range of possible outcomes, and eachpoint is likely as the others, the MIDPOINT of the range is used.

* Large population of items, it is estimated by WEIGHTING all possible outcomes by their associated possibilities, EXPECTED VALUE.

Other measurement considerations

* A. Risk and uncertainties

This shall be taken into account in reaching the best estimate of a provision.

Risk describes variability of outcome

Risk adjustment may increase the amount at which a liability is measured.

Prudence is cautious om uncertainty so that income and assets do not overstate. HOWEVER uncertainty does not justify excessive provision or overstated liabilities

* B. Present value of obligation

As effect of time value of money
Provision = PV of expenditure expected to settle the obligation
Discounted, if MATERIAL
NOT discounted, if IMMATERIAL

The discount rate = pretax, reflects the current market assessment of time value of money and risk specific to liability.

Discount rate, should NOT reflect the risk for which cash flow estimate already adjusted.

* C. Future events

where there is sufficient evidence that it will occur and affect the amount required to settle an obligation, it shall be reflected in the amount of provision.

* D. Expected disposal of assets

* E. Reimbursements

* F. Changes in Provisions

* H. Use of Provision

* I. Future operating losses

* J. Onerous contract

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