If an obligation is possible but the related outflow of economic benefits is remote, IAS 37 generally requires the entity to:
Correct answer: D. Make no provision or disclosure
- A. Recognize a full provision
- B. Recognize an accrued expense
- C. Capitalize the expected outflow
- D. Make no provision or disclosure
Explanation
A remote outflow does not normally require recognition of a provision or disclosure as a contingent liability. Disclosure is generally considered when the outflow is possible or not probable, unless the chance is remote.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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34 free Accruals, Prepayments and Provisions MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
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More Accruals, Prepayments and Provisions questions
A provision recognized for a specific obligation should be used for:
If a provision is no longer required because the related obligation has been settled or has ceased to exist, the provision should normally be:
Under IAS 37, the present value of a provision is used when the effect of:
An accrued expense has an opening balance of Rs 8,000. During the year, cash paid for the expense is Rs 70,000, and the closing accrual is Rs 12,000. What expense is charged for the year?
A business has a prepaid expense of Rs 6,000 at the beginning of the year. It pays Rs 30,000 during the year and has a prepaid balance of Rs 10,000 at year-end. What expense is recognized?
At each reporting date, an entity should review an existing provision and adjust it to reflect the: