Under IAS 37, the present value of a provision is used when the effect of:
Correct answer: B. The time value of money is material
- A. Inflation is completely absent
- B. The time value of money is material
- C. The liability is paid immediately
- D. The estimate has no uncertainty
Explanation
A provision is discounted when the time value of money is material, because settlement may occur in the future. The discount is unwound over time as the settlement date approaches.
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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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