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    Liabilities and provisions are recognized in financial statements if certain criteria are met. Liabilities are initially measured at cost or fair value. Provisions involve probable obligations of uncertain timing or amount and are measured using estimates of the resources required to fulfill the obligation. Contingent liabilities only involve possible obligations where the existence or amount is uncertain and are not recognized but may be disclosed in financial statements.

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    Liabilities and provisions are recognized in financial statements if certain criteria are met. Liabilities are initially measured at cost or fair value. Provisions involve probable obligations of uncertain timing or amount and are measured using estimates of the resources required to fulfill the obligation. Contingent liabilities only involve possible obligations where the existence or amount is uncertain and are not recognized but may be disclosed in financial statements.

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    PAS 37 Answers

    Uploaded by

    xxpinkywitchxx
    Liabilities and provisions are recognized in financial statements if certain criteria are met. Liabilities are initially measured at cost or fair value. Provisions involve probable obligations of uncertain timing or amount and are measured using estimates of the resources required to fulfill the obligation. Contingent liabilities only involve possible obligations where the existence or amount is uncertain and are not recognized but may be disclosed in financial statements.

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    Liability is recognized in a financial statement if:

     Meets the definition of financial liability


     Provides useful information that is reliable and faithfully represented
     Benefits of the information outweigh the cost of getting the information
     It can be measured reliably/measurable

    Financial liabilities are initially recognized at cost, at fair value of the assets and liabilities received in
    exchange for the liabilities incurred, fair value of the liability at the date incurred.

    Non-financial liabilities are initially and subsequently recognized at the amount or estimates
    assigned to it. (assigned monetary amount which in some instances must be estimated)

    NOTE: Uncertainty of timing and the amount do not disqualify the obligation from being classified
    as a liability

    PROVISIONS VS CONTINGENT LIABILITIES

    Obligations involving uncertainties are either a provision or a contingent liability

    Provision

     There is a probable outflow of resources embodying economic benefit that will be used to
    settle the obligation however the timing of settlement is not definite and the amount of
    outflow can only be measured based on reasonable estimates.
     The existence as of the reporting date is certain since it has meet the definition of the
    liability but uncertain as to its timing or amount.

    CONDITIONS FOR A CONTINGENT LIABILITY

    Contingent liability is recognized when (1) existence is uncertain as of the end of the reporting
    period or (2) when the amount of the obligation cannot be reliably estimated regardless as to
    whether there is a probable outflow:

    REASONS:

    (1) There is no present obligation since it doesn’t meet the definition of liability
    (2) Even if it meets the definition, no reasonable amount can be assigned to the item even with
    the use of reliable estimates.

    NOTE: There is a need for contingent liabilities to be assessed continually so as to determine as to


    whether the obligation has now become a provision. With this being said, there is a need for
    reversal which is treated as a change in estimate.

    PROVISION CONTINGENT LIABILITY


    It is a liability of uncertain timing or amount (1) Possible Obligation – the existence can
    only be confirmed with the occurrence
    or non-occurrence of one or more
    uncertain future events which is not
    within the control of the entity
    (2) Present Obligation
     No probable outflow of
    resources embodying economic
    benefits
     The amount cannot be
    measured reliably
    Recognized at the face of the statement of the Not recognized at the face of the statement of
    financial position financial position
    Recognized separately from other liabilities or  Disclosed only
    under liabilities in the financial liabilities  Recognized only in the FS if their a
    remote chance/possibility of outflow of
    resources embodying economic
    benefits

    STATUS OF OBLIGATIONS INVOLVING UNCERTAINTIES

    Probable

     Reliably Measured = Recognized (Record by debiting a loss and crediting a liability)


     Not measured reliably = Disclosed only

    Reasonably Possible = Disclosed only

    Remote = Ignore

    MEASUREMENT

    Liabilities initially measured @

    (1) At amounts established in exchange (at cost)


    (2) By estimates of a definitive character when the amount of the liability cannot be measured
    more precisely (cost for provisions)

    Provisions initially measured @ best estimates of the expenditure required to settle the obligation
    at the end of the reporting period, considering:

     Judgment of the management


     Experience in similar transactions
     Reports of independent experts

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