POVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

PROVISIONS AND OTHER LIABILITIES What is a provision?

NO PROVISION FOR FUTURE OPERATING LOSSES

CONTINGENT ASSET Probabable in flow DISCLOSURE 1 Brief description of nature contingency

When to make a provision Nature and If practicable Past event Present obligation It is probable that there will be out flow of cash and a reasonable estimate can be made If measurement is not practicable the fact should be disclosed estimate of financial effect

2 Estimate of financial effect

3 Indication of contingencies

relating to timing or amoun If there is a dispute and disclosure may back fire

General nature of dispute together with reason why information is not disclose

LEGAL OBLIGATION A legal obligation is derived from a contract legislation or other operation of law

CONSTRUCTIVE OBLIGATION

A constructive obligation is one that derives from the actions, past conduct of the institution itself that creates a valid expectation of those other parties that are
affected by.

NT ASSETS

CONTINGENT LIABILITITIES 1 Brief description of nature of contingency 2 Estimate of financial effect 3 Indication of contingencies relating to timing or amount

MEASUREMENT OF PROVISION

ONEROUS CONTRACTS The contract that result in losss in either case whether the contract is executed or avoided is an onerous contract

Present Value of Obligation If the time value of

Expected Value

Present Value of Obligation shall be recognized under the contract lower of

If there is a dispute and disclosure may back fire General nature of dispute together with reason why information is not disclosed

money is material Provision shall be Present Value of obligation discounted at market rate of interest

Cost to avoid

Loss on execution There is a detailed formal

Gains from expected sale of asset shall not be taken into account in measuring provision REIMBURSEMENT SHALL BE TAKEN AS ASSET IN INCOME STETEMENT RECOVERY MAY BE OFFSET AGAINST PROVISION 4 1

plan which identifies atleast;

the business or part of the business conc 2 the principal locations affected; 3 the location, function and approximate n
of employees to be compensated

the expenditures to be carried out and 5 the dates on which the plan will be impl

RESTRUCTURING Only operational is applicable EXAMPLES

DISCLOSURES

Reconciliation for each class of provision: [IAS 37. opening balance additions

Sale or termination of business Closure of a business location Changes in management CONDITIONS FOR MAKING PROVISIONS

used (amounts charged against the prov released (reversed) unwinding of the discount closing balance

For each class of provision, a

Implementation has been started OR has raised valid expectation among those affected by

There is a detailed formal plan which identifies atleast;

There is a binding sale agreement if disposal is to be made

nature timing uncertainties assumptions reimbursem

ess or part of the business concerned; ipal locations affected; on, function and approximate number

ees to be compensated

nditures to be carried out and on which the plan will be implemented and

ALL BEFORE YEAR END i.e. EXCEPTION OF IAS 10

sion: [IAS 37.

ounts charged against the provision) of the discount

For each class of provision, a brief description of: [IAS 37.85] nature timing uncertainties assumptions reimbursement, if any