Under IAS 37, a provision is generally recognized when which combination of conditions exists?
Correct answer: B. A present obligation exists, outflow is probable, and amount is reliably estimated
- A. A possible obligation exists with no reliable estimate
- B. A present obligation exists, outflow is probable, and amount is reliably estimated
- C. Management plans a future expense and cash is available
- D. A past event occurred but no obligation currently exists
Explanation
Recognition requires a present obligation from a past event, a probable outflow of resources, and a reliable estimate of the amount. A management intention alone does not create 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
Which statement best distinguishes a provision from a reserve?
A company initially records a full advance payment for insurance as an expense. What year-end adjustment is needed for the unexpired portion?
Recognizing an accrued expense at the end of an accounting period normally has what effect?
Income has been earned but not yet received or recorded. Which entry records the accrued income?
A rent payment of Rs 120,000 covers 12 months from 1 October. What amount is treated as rent expense for the year ending 31 December?
When a provision for product warranties is recognized before any warranty claim is paid, what is the immediate effect?