Provisions

What provisions covers

A provision is a liability of uncertain timing or amount. It is recognised only when a present obligation exists as a result of a past event, an outflow of resources is probable, and the amount can be estimated reliably. If those tests are not met the item may still be a contingent liability, disclosed rather than recognised.

These challenges ask you to apply the recognition tests, measure the provision, and decide between recognition and disclosure.

Where marks are usually lost

• Providing for a future operating loss, which is not a present obligation.
• Recognising a provision when an outflow is merely possible rather than probable.
• Measuring at the maximum possible outcome instead of the best estimate.