provision, contingent liabilities and contingent asset

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financial reporting

Transcript of provision, contingent liabilities and contingent asset

  • 1. Welcome

2. Group name: Youth boomers 3. Member of youth Boomers: Anqur Chowdhury - 110106027 Md. Shipon Mia - 110106060 Sheikh Mahbub Habib - 130106104 4. Presentation on: provision, contingent liabilities and contingent asset 5. Definition of provision: A provision is a liability of uncertain timing or amount. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. 6. Recognition of Provisions: A provision should be recognized: An entity has a present obligation as a result of a past event It is probable that an out flow of resources embodying economic benefits will be required to settle the obligation, and a reliable can be made of the amount of the obligation 7. Obligations: A provision may be necessary as a result of A legal or A construction obligation 8. Legal obligation A legal obligation is an obligation that derives from: A contract Legislation Other operation of law 9. Constructive obligation: A constructive obligation is an obligation that derives from an entity a actions where: By an established pattern of past practice, published polices or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities. 10. Measuring provisions a realistic estimate a prudent estimate of the expenditure needed to settle the obligation existing at the reporting date discounted whenever the effect of this is material 11. Restructurings: A restructuring is sale or termination of a line of business closure of business locations changes in management structure Fundamental reorganizations. 12. Use of provisions: Provisions should only be used for the purpose for which they were originally recognized. They should be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources will be required to settle the obligation, the provision should be reversed. 13. Definition of Contingent liability a possible obligation depending on whether some uncertain future event occurs, or at present obligation but payment is not probable or the amount cannot be measured reliably 14. Relationship between provisions and contingent liabilities: (a) Provisions which are recognized as liabilities because they are present obligations and it is probable that an outflow of resources embodying Economic benefits will be required to settle the obligations; and 15. (b) Contingent liabilities which are not recognized as liabilities because they are either I. Possible obligations, as it has yet to be confirmed whether the entity has a present Obligation that could lead to an outflow of resources embodying economic benefits; or II. Present obligations that do not meet the recognition criteria in this Standard 16. Contingent assets: A contingent asset is a possible that arises from past event whose existence will bee confirmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the entity. 17. Accounting for contingent liabilities: Contingent liabilities: Should not be recognized in the statement of financial position itself Should be disclosing red in a note unless the possibility of a transfer of economic benefits is remote. 18. Accounting for contingent assets: Contingent assets should not generally be recognized but if the possibility of inflows of economic benefits is problem. they should be disclosed If a gain is virtually certain. if falls within the definition of an asset and should be recognized as such. Not as a contingent asset. 19. Disclosure of contingencies: The principal disclosure requirements regarding contingencies are: The nature of the contingency The uncertainties expected to affect the ultimate outcome. An estimate f the potential effect. 20. Any question ? 21. Thank you