Page 183 - Microsoft Word - 00 IWB ACCA F7.docx

IAS 37 and IAS 10

Provisions

1.1 Definitions

A provision is a ‘liability of uncertain timing or amount’ (IAS 37,
para 10).

A liability is a ‘present obligation of the entity arising from past
events the settlement of which is expected to result in an outflow
from the entity of resources embodying economic benefits’ (IAS
37, para 10).

1.2 Recognition

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a
provision is recognised when:

 there is a present obligation from a past event

 there is a probable outflow of economic benefits

 the probable outflow can be measured reliably.

The accounting entry for a provision is normally:

Dr Profit or loss X

Cr Provisions (SFP) X

1.3 Obligation

An obligation is something that cannot be avoided:

 a legal obligation arises from contracts, laws or legislation

 a constructive obligation arises when an entity’s past practices or published
policies create an expectation that it will discharge certain responsibilities.

177