Under IAS 37, a provision is generally not recognized for expected future operating losses because they:
Correct answer: B. Do not create a present obligation
- A. Are always paid in cash
- B. Do not create a present obligation
- C. Are recorded as capital assets
- D. Must be approved by auditors
Explanation
Future operating losses do not arise from a present obligation at the reporting date. They are expected results of future operations and therefore do not meet the recognition requirements for a provision.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? support@testustad.com
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.
Practise Accruals, Prepayments and Provisions
34 free Accruals, Prepayments and Provisions MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Accruals, Prepayments and Provisions questions
Immediately after a business pays an amount for a future service, with no part of the service yet received, what is the usual effect on total assets?
Under the matching principle, a prepaid expense becomes an expense when the related:
Cash received from a customer before the related service is provided is normally recorded as a:
A restructuring provision is normally recognized only when the entity has a detailed formal plan and has:
Under IAS 37, the present value of a provision is used when the effect of:
If a provision is no longer required because the related obligation has been settled or has ceased to exist, the provision should normally be: