Provisions and Contingencies Quiz
7 multiple-choice questions with answers and explanations · 6 medium, 1 hard
When to recognise a provision, when to disclose a contingent liability, and how the amount is measured.
- 1IAS 37 — When Is a Provision Recognized?Under IAS 37, a provision is recognized when:medium
- 2IAS 37 — Contingent AssetsUnder IAS 37, a contingent asset (e.g. a probable court award not yet decided) is:medium
- 3Warranty Provision — Year-End BalanceA company provides for warranty costs at 2% of annual sales of $400,000. Actual warranty claims paid during the year were $3,000. The warranty provision at year-end is:medium
- 4A Possible (Not Probable) ContingencyA lawsuit against a company is assessed as only POSSIBLE (not probable) to result in an outflow of resources. Under IAS 37, the company should:medium
- 5US GAAP: A Loss Contingency Range With No Best EstimateA loss is probable and the amount is estimated somewhere between $200,000 and $500,000, with no point in the range a better estimate than any other. Under US GAAP the company accrues:medium
- 6US GAAP: The "Probable" Threshold for a Loss ContingencyUnder ASC 450, "probable" — the threshold for accruing a loss contingency — means the future event is:medium
- 7IAS 37 — Onerous Contract ProvisionFulfilling the remainder of a contract will cost the entity a net $12,000, while cancelling it triggers a $9,000 penalty. The onerous contract provision recognized is:hard