Question 1

Purcell Limited is a manufacturer of swimming pools and provides its customers with warranties at the time of sale. The warranty applies for three years from the date of sale. Past experience shows that there will be some claims under the warranties. The appropriate treatment of this item under AASB 137 Provisions, Contingent Liabilities and Contingent Assets is to:

Accepted Answer

A)   disclose in the notes, but do not recognise in the financial statements.
B)   recognise the best estimate of costs as a provision.
C)   charge the costs directly to profit or loss in the period in which the economic outflows occur.
D)   transfer the expected amount of the warranty from retained earnings to a special reserve account in equity.

Question 2

For each class of provision, an entity is required under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, to disclose the following information:
I - The carrying amount at the beginning and end of the period.
II - Amounts incurred and charged against the provision during the period.
III - Comparative information.
IV - Unused amounts reversed during the period.
V - Additional provisions made during the period.

Accepted Answer

A)   I, II, IV and V only.
B)   I, II, and III only.
C)   II, III and IV only.
D)   I, III, IV and V only.

Question 3

The June 2005 exposure draft issued in relation to proposed changes to AASB 137:

Accepted Answer

A)   will be issued as a standard applicable for reporting periods ending on or after 1 June 2014.
B)   has been withdrawn by the AASB.
C)   is still under consideration by the AASB.
D)   is already applicable.

Question 4

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 5

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 and timing of expected outflows.

Question 6

JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations would be as follows:
In 1 year - $40 000.
In 2 years - $50 000.
In 3 years - $60 000.
A government rate for bonds with similar terms is 6%. What is the present value of the total expected future cash outflow?

Accepted Answer

A)   $132 612.
B)   $140 510.
C)   $150 000.
D)   $159 000.

Question 7

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.

Exam 8: Provisions, Contingent Liabilities and Contingent Assets

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

Correct Answer
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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 Answer
verified

The June 2005 exposure draft issued in relation to proposed changes to AASB 137:

Correct Answer
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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:

Correct Answer
verified

Correct Answer
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Correct Answer
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Exam 8: Provisions, Contingent Liabilities and Contingent Assets

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

The June 2005 exposure draft issued in relation to proposed changes to AASB 137:

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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