Provisions and Contingencies

Which of the following best describes a provision?

• A possible obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity

• A probable obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation

• A present obligation arising from past events the settlement of which is expected to result in an outflow of economic benefits

• A liability of uncertain timing or amount

Contingent assets should be recognised in the financial statements when they are…

• Possible

• Probable

• Definite

• Received

The amount of a provision shall be the _________ of the expenditures expected to be required to settle the obligation

• Market Value

• Fair Value

• Cost Value

• Present Value

For continuing services revenue should be recognised when stage of completion can be reliably measured

• True

• False

In the Tesco Scandal of 2014 how was profit overstated?

• Revenue was recognised before the conditions were met

• Costs were recognised in a later period than they should have been

• Accruals principle was not adhered to correctly

• All of above

Profit Smoothing makes a business appear.....

• More risky to shareholders

• Less risky to shareholders

• Has no effect on shareholders decisions

Happy Feet Ltd. intend to refurbish their head office buildings along with all of its retail outlets over the next 12 months, this will have a significant cost to the business and they want to create a provision in the current period to offset some of the cost this year, is this allowed under the rules of FRS 102?

• Yes

• No

Contingent Liabilities should be.....

• Recognised in the financial statements

• Disclosed in a note to the financial statements