* 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.
* 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