Question 1

Which of the following is not within the scope of AASB 137?

Accepted Answer

A)   The treatment of future operating losses
B)   The treatment of contingent assets
C)   The treatment of restructuring provisions arising from a business combination
D)   The treatment of onerous contracts

Question 2

The following statement, contained in AASB 137 Provisions, Contingent Liabilities and Contingent Assets, defines:
' a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity'

Accepted Answer

A)   a deferred liability;
B)   a contingent liability;
C)   a deferred asset;
D)   a contingent asset.

Question 3

The costs under an onerous contract are measured using which valuation method?

Accepted Answer

A)   the lower of cost or net market value;
B)   the lower of the cost of fulfilling the contract and the penalties arising from failure to fulfil the contract;
C)   the present value method using a risk-free discount rate;
D)   the unavoidable costs of meeting the obligations discounted by reference to market yields at reporting date.

Question 4

Provisions shall be recognised when:
I an entity has a present obligation
II it is possible that an outflow of resources will be required to settle the obligation
III the amount of the obligation can be reliably estimated
IV there has been a past event

Accepted Answer

A)   I, II and III
B)   II, III and IV
C)   I, III and IV
D)   I, II and IV

Question 5

At balance sheet date, Raschella Limited was awaiting the final details of a court case for damages awarded in its favour. The amount and possible receipt of damages is unknown and will not be decided until the court sits again in several months time. How is this event dealt with in the preparation of the financial statements?

Accepted Answer

A)   do not recognise or disclose in the financial statements as the possibility of receiving damages is remote;
B)   recognise as an asset in the financial statements as the receipt of damages is probable;
C)   disclose in the notes to the financial statements as it is possible that the entity will receive the damages and the court decision is out of its control;
D)   recognise as a deferred asset in the statement of financial position and re-classify as a non-current asset when the court decision is known.

Question 6

An entity sells goods under warranty and past experience shows that minor defects account for 10% of sales and major defects account for 2% of sales. If all minor defects were repaired the warranty cost would be $300 000, and if all major defects were repaired the warranty cost would be $800 000. The expected value of the warranty cost is:

Accepted Answer

A)   $0;
B)   $22 000;
C)   $46 000;
D)   $86 000.

Question 7

Under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the appropriate accounting treatment for future operating losses is to:

Accepted Answer

A)   determine a reasonable estimate of the cost and provide for the future liability;
B)   determine the cost and charge it directly against retained earnings;
C)   not recognise such items in the financial statements;
D)   measure on the basis of estimated future cash flows.

Question 8

In respect to a contingent liability, AASB 137 Provisions, Contingent Liabilities and Contingent Assets, requires disclosure of

Accepted Answer

A)   any increase in the contingent liability during the period;
B)   an estimate of its financial effect;
C)   the carrying amount at the beginning and end of the period;
D)   an indication of the uncertainties about the amount or timing of expected outflows.

Question 9

An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

Accepted Answer

A)   liability
B)   accrual
C)   provision
D)   contingent liability

Question 10

According to AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the appropriate treatment for a contingent asset in the financial statements of an entity is:

Accepted Answer

A)   disclosure of information in the notes, but do not recognise in the financial statements;
B)   recognition in the financial statements, and note disclosure;
C)   recognition in the financial statements, but no further disclosure in the notes;
D)   do not recognise in the financial statements, and do not disclose in the notes.

Exam 6: Provisions, Contingent Liabilities and Contingent Assets

According to AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the appropriate treatment for a contingent asset in the financial statements of an entity is:

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In respect to a contingent liability, AASB 137 Provisions, Contingent Liabilities and Contingent Assets, requires disclosure of

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The costs under an onerous contract are measured using which valuation method?

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Provisions shall be recognised when: I an entity has a present obligation II it is possible that an outflow of resources will be required to settle the obligation III the amount of the obligation can be reliably estimated IV there has been a past event

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An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

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Which of the following is not within the scope of AASB 137?

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Under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the appropriate accounting treatment for future operating losses is to:

Correct Answer
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Exam 6: Provisions, Contingent Liabilities and Contingent Assets

According to AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the appropriate treatment for a contingent asset in the financial statements of an entity is:

Correct AnswerverifiedShow Answer

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In respect to a contingent liability, AASB 137 Provisions, Contingent Liabilities and Contingent Assets, requires disclosure of

Correct AnswerverifiedShow Answer

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The costs under an onerous contract are measured using which valuation method?

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Provisions shall be recognised when: I an entity has a present obligation II it is possible that an outflow of resources will be required to settle the obligation III the amount of the obligation can be reliably estimated IV there has been a past event

Correct AnswerverifiedShow Answer

An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

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Which of the following is not within the scope of AASB 137?

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Under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the appropriate accounting treatment for future operating losses is to:

Correct AnswerverifiedShow Answer

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