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25 Cards in this Set
- Front
- Back
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b. A liability of uncertain timing or amount |
Which is the correct definition of a provision? a. A possible obligation arising from past event b. A liability of uncertain timing or amount c. A liability which cannot be easily measured d. An obligation to transfer funds to an entity |
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d. All of these are required for the recognition of a provision as liability. |
A provision shall be recognized as liability when a. An entity has a present obligation as a result of a past event. b. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. c. The amount of the obligation can be measured reliably. d. All of these are required for the recognition of a provision as liability. |
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d. An established pattern of past practice |
A legal obligation is an obligation that is derived from all of the following, except a. Legislation b. A contract c. Other operation of law d. An established pattern of past practice |
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c. Both I and II |
A constructive obligation is an obligation I. That is derived from an entity’s action that the entity will accept certain responsibilities because of past practice, published policy or current statement. II. The entity has created a valid expectation in other parties that it will discharge those responsibilities.
a. I only b. II only c. Both I and II d. Either I or II |
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a. Obligating event |
It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation. a. Obligating event b. Past event c. Subsequent event d. Current event |
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a. The probability that the event will occur is greater than the probability that the event will not occur. |
An outflow of resources embodying economic benefits is regarded as probable when a. The probability that the event will occur is greater than the probability that the event will not occur. b. The probability that the event will not occur is greater than the probability that the event will occur. c. The probability that the event will occur is the same as the probability that the event will not occur. d. The probability that the event will occur is 90% likely. |
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c. Midpoint |
Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the range to be used is the a. Minimum b. Maximum c. Midpoint d. Sum of the minimum and maximum |
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a. Reflects the weighting of all possible outcomes by their associated probabilities. |
When the provision involves a large population of items, the estimate of the amount a. Reflects the weighting of all possible outcomes by their associated probabilities. b. Is determined as the individual most likely outcome. c. May be the individual most likely outcome adjusted for the effect of other possible outcomes. d. Midpoint of the possible outcomes. |
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c. Is the individual most likely outcome adjusted for the effect of other possible outcomes. |
When the provision arises from a single obligation, the estimate of the amount a. Reflects the weighting of all possible outcomes by their associated probabilities. b. Is determined as the individual most likely outcome. c. Is the individual most likely outcome adjusted for the effect of other possible outcomes. d. Midpoint of the possible outcomes. |
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d. The reimbursement shall not be treated as separate asset but “netted” against the estimated liability for the provision. |
Which statement is incorrect where the expenditure required to settle a provision is expected to be reimbursed by another party? a. The reimbursement shall be recognized only when it is virtually certain that the reimbursement would be received if the entity settles the obligation. b. The amount of the reimbursement shall not exceed the amount of the provision. c. In the income statement, the expense relating to the provision may be presented net of the reimbursement. d. The reimbursement shall not be treated as separate asset but “netted” against the estimated liability for the provision. |
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d. Gains from expected disposal of assets shall be taken into account in measuring a provision. |
Which statement is not true in relation to the measurement of a provision? a. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision. b. Where the effect of the time value of money is material the amount of a prdvision shall be the present value of the expenditure expected to settle the obligation. c. Future events that may affect the ambunt required to settle the obligation shall be reflected in the amount of the provision where there is sufficient objective evidence that the future events will occur. d. Gains from expected disposal of assets shall be taken into account in measuring a provision. |
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d. Is a post-tax discount rate |
Which of the following is incorrect regarding the discount rate used in measuring a provision? a. Reflects current market assessment of the time value of money b. Reflects risks specific to the liability c. Does not reflect risks for which future cash flow estimates have been adjusted d. Is a post-tax discount rate |
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c. Provisions shall be recognized for future operating losses. |
Which statement is incorrect concerning recognition of a provision? a. Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate. b. A provision shall be used only for expenditures for which / the provision was originally recognized. c. Provisions shall be recognized for future operating losses. d. If an entity has an onerous contract, the present obligation under the contract shall be recognized and measured as a provision. |
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a. Onerous contract |
It is a contract in which the unavoidable costs of meeting the obligation under the contract exceed the economic benefits to be received under the contract a. Onerous contract b. Executory contract c. Executed contract d. Sale contract |
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c. Lower between the cost of fulfilling the contract and the penalty arising from failure to fulfill the contract |
The unavoidable costs under an onerous contract represent the least net cost of exiting from the contract which is equal to a. Cost of fulfilling the contract b. Penalty arising from failure to fulfill the contract c. Lower between the cost of fulfilling the contract and the penalty arising from failure to fulfill the contract d. Higher between the cost of fulfilling the contract and the penalty arising from failure to fulfill the contract |
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d. The outcome of a future event. |
Contingent liability will or will not become actual liability depending on a. Whether probable and measurable. b. The degree of uncertainty. c. The present condition suggesting a liability. d. The outcome of a future event. |
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d. Remote |
The likelihood that the future event will or will not occur can be expressed by a range of outcome. Which range means that the future event occurring is very slight? a. Probable b. Reasonably possible c. Certain d. Remote |
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d. A contingent liability is both probable and measurable. |
Which statement is incorrect concerning a contingent liability? a. A contingent liability is not recognized in the financial statements. b. A contingent liability is disclosed only. c. If the contingent liability is remote, no disclosure is required d. A contingent liability is both probable and measurable. |
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a. Has a most probable value -of zero but may require a payment if a given future event occurs. |
A contingent liability a. Has a most probable value -of zero but may require a payment if a given future event occurs. b. Definitely exists as a liability but the amount or due date is indeterminate. c. Is reported of current liability. d. Is not disclosed in the financial statements. |
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c. As a disclosure only |
How should a contingent liability be reported in the financial statements when it is reasonably possible? a. As a deferred liability b. As an accrued liability c. As a disclosure only d. As an account payable |
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a. Realized |
Contingent asset is usually recognized when a. Realized b. Occurrence is reasonably possible and the amount can be reliably measured c. Occurrence is probable and measurable d. The amount can be reliably measured |
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d. A disclosure only |
Which is the proper treatment of contingent asset? a. An accrued account b. Deferred income c. An account receivable d. A disclosure only |
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d. Should not be reported or disclosed. |
Gain contingency that is remote and measurable a. Must be disclosed in a note to the financial statements. b. May be disclosed in a note to the financial statements c. Must be reported in the body of the financial statements. d. Should not be reported or disclosed. |
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d. Contingent loss that is remote and measurable. |
Disclosure usually is not required for a. Contingent gain that is probable and measurable. b. Contingent loss that is possible and measurable. c. Contingent loss that is probable and cannot be reliably measured. d. Contingent loss that is remote and measurable. |
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a. Loss contingency that is probable and measurable. |
Reporting in the financial statements is required for a. Loss contingency that is probable and measurable. b. Gain contingency that is probable and measurable. c. Loss contingency that is possible and measurable. d. All loss contingencies. |
