...INFORMATION PURPOSES ONLY EN – EU IAS 37 International Accounting Standard 37 Provisions, Contingent Liabilities and Contingent Assets Objective The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount. Scope 1 This Standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except: (a) those resulting from executory contracts, except where the contract is onerous; and (b) [deleted] (c) those covered by another Standard. 2 This Standard does not apply to financial instruments (including guarantees) that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement. 3 Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. This Standard does not apply to executory contracts unless they are onerous. 4 [Deleted] 5 When another Standard deals with a specific type of provision, contingent liability or contingent asset, an entity applies that Standard instead of this Standard. For example, some types of provisions are addressed in Standards on: (a) construction contracts (see IAS 11 Construction...
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...Current Liabilities and Contingencies Current Liabilities IAS 1, Presentation of Financial Statements, requires liabilities to be classified as current or noncurrent. Current liabilities are those liabilities that a company: a. expects to settle in its normal operating cycle, b. holds primarily for the purpose of trading, c. expects to settle within twelve months of the balance sheet date, or d. does not have the right to defer until twelve months after the balance sheet date. The classification and accounting for current liabilities under IFRS is very similar to U.S. GAAP. Differences relate to the following: * Refinanced short-term debt – may be reclassified as long-term debt only if refinancing is completed prior to the balance sheet date (under U.S. GAAP, a refinancing agreement must be reached but the refinancing need not be completed by the balance sheet date) * Amounts payable on demand due to violation of debt covenants – must be classified as current unless a 12-month waiver is obtained from the lender by the balance sheet date (waiver must be obtained by the annual report issuance date under U.S. GAAP) * Bank overdrafts – are netted against cash if the overdrafts form an integral part of the entity’s cash management (classified as current liabilities under U.S. GAAP). * Deferred income taxes – deferred income tax assets and deferred income tax liabilities are not allowed to be classified as current (under U.S. GAAP, deferred...
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...ACCT 2015 INTERMEDIATE FNANCIAL ACCOUNTING 11 Current Liabilities, Contingencies & Provisions Required Reading: Alfredson – Chap 5, Keiso – Chaps 13, IAS 37 Learning Objectives 1. CURRENT LIABILITIES: – Define and explain types of current liabilities. – Account for the major types 2. IAS 37 PROVISIONS & CONTINGENCIES – Define Provisions and answer the following questions: • • • Why do them When to provide How much to provide – Calculate and account for Restructuring Provisions – Define Contingent Assets & Liabilities and apply relevant measurement and recognition rules – Apply IAS 37 Disclosure Requirements CURRENT LIABILITIES LIABILITY – Claims against the business arising out of a past transaction that will cause an outflow of resources e.g. loans, notes payable • Long-Term Liability - Obligations that a company does not reasonably expect to liquidate within the normal operating cycle Current Liability - Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities. • 1 CURRENT LIABILITIES E13-2 (Accounts and Notes Payable) The following are selected 2007 transactions of Sean Astin Corporation. Sept. 1 - Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic inventory system. Oct. 1 - Issued a $50,000, 12-month, 8% note to Encino in payment of account. Oct. 1 - Borrowed $50,000 from the Shore Bank by signing...
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...Dfera Energy limited. Audit for the year ended 31 December 2013 The Company has retained following Lawyers for all litigation matters pertaining to Company * Abdul Qadir Sheikh * AR Awan Raza * Faisal Mehmood Ghani & CO * ORR Dignam and & CO * Shaikh Naseem Athar * Fazleghani associates * Abdus Salam Arain * Amhurst Brown * Maaz law associates Brief description of nature/Impact of cases are stated below Sr. No. | Parties to case | History of case | Court | Lawyer’s opinion | Accounting Impact | 1 | Ocean Petroleum Limited Vs. Federation of Pakistan, Directorate General Petroleum Concession, Dfera Energy Limited, Dfera (Pakistan) Exploration G.M.B.H, Zaver Petroleum Corporation Limited and Government holding Limited. | Intra court appeal (ICA) has been filed by Plaintiff against Judgment of Single bench. In writ petition Plaintiff has challenged No objection certificate(NOC) issued by Directorate General Petroleum Concession to OMEL and a direction to DGPC to restrain OMEL from alienating, transferring, disposing it’s interest in Maher Concession and direction to enter into contract with any party, Particularly OMV(Pakistan) G.m.b.H. To Date there is no injunction order in the matter. In aforesaid Writ petition Zaver Petroleum Corporation Limited (ZPCL) and Ocean Petroleum Limited was plaintiff before single member bench but in intra court appeal before Division Bench Zaver Petroleum Corporation Limited has opted not to appeal...
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...impairment of the emission allowances. Furthermore, it is important to note that a number of other standards provide an indirect support for the recognition, measurement and disclosure of environmental assets and liabilities. BAS 37 (provisions for contingent liabilities and assets) can be linked to environmental liabilities. BFRS 3, BAS 27, BAS 28, BAS 31, BAS 24 and BFRS 8 respectively deal with business combinations, investments in joint ventures and associates, related party disclosures, and specify the reportable segments of a geographically dispersed global company. Listed local manufacturing companies, subject to certain exemptions, are expected to comply with BFRS. An environment perspective to financial reporting standards therefore provides a new insight; an insight that is useful for monitoring and protecting the environment. The relevant standards are discussed below. Paragraph 11 of BFRS 6 states the following: “In accordance with BAS 37 Provisions, continent liabilities and contingent assets, an entity recognizes any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken the exploration for and evaluation of mineral resources”. Furthermore, paragraph 3 of BAS 37 defines provisions as “liabilities of uncertain timing or amount”; and...
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...the answers. Answer to question 1 1 Definition of liability: A present obligation arising from a past event, the settlement of which is expected to result in an outflow of resources embodying benefits (i.e. usually a cash payment) There are two types of event creating obligation a) Legal – arises from the conclusion of legal contract, legislation or other operation of law. Example: repair warranty in sales agreement Constructive – derives from the actions of the enterprise where: Past actions – by an established pattern of past practice, published policies or a sufficiently specific current statement, the enterprise has indicated to other parties that it will accept certain responsibilities; and Created valid expectations – as a result, the enterprise has created valid expectations on the part of those parties that it will discharge those responsibilities For example: manufacturer has repaired any faulty items free of charge though there is no warranty in the sales agreement 3. Provision is a liability of uncertain timing or amount. It is accrued on the statement of financial position as it is probable it will be settled and a reliable estimate can be made of the amount that will be settled. Application of the recognition and measurement rules Future operating losses Do not meet the definition of liability and no provision should be made. Onerous contracts Where certain rights and obligations make a contract onerous, a provision should be recognized for any unavoidable costs exceed...
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...related exposure drafts proposing amendments to IAS 36 and IAS 38 | 31 March 2004 | IFRS 3 Business Combinations and related amended versions of IAS 36 and IAS 38 IFRS 3 supersedes IAS 22 | 1 April 2004 | Generally: Business combinations agreed to after 31 March 2004. Special provisions for previously recognised goodwill, negative goodwill, intangible assets, and equity accounted investments. | 29 April 2004 | Exposure Draft of Proposed Amendments to IFRS 3 Combinations by Contract Alone or Involving Mutual Entities. After considering comments on this ED, the Board decided to include the issues addressed in the ED in the 30 June 2005 exposure draft. | RELATED INTERPRETATIONS | * Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda | AMENDMENTS UNDER CONSIDERATION BY IASB | 30 June 2005 | Exposure Draft of substantial revisions to IFRS 3 | SUMMARY OF IFRS 3 | | Deloitte has published an 84-page book Business Combinations: A Guide to IFRS 3. The guide: * Outlines the key features of IFRS 3. * Provides illustrative examples to assist in applying the standard. * Discusses the requirements of IAS 36 Impairment of Assets and IAS 38 Intangible Assets as they relate to business combinations. * Includes guidance on determining fair value for the purposes of accounting for business combinations; an overview comparison between the requirements of IFRS and those of US GAAP; a number of frequently asked questions; and illustrative...
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...Case Study: Contingency: BP a. A contingent liability is a potential liability that depends on a future event occurring or not occurring; or past events that are not recognized because the outcome is not probable or the amount of obligation cannot be measured. Examples: Law suits and government agencies investigations and product warranties. A contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can be estimated. If a contingent liability is only possible (not probable), or if the amount cannot be estimated, a journal entry is not required. When a contingent liability is remote (such as a nuisance suit), neither a journal nor a disclosure is required. b. A warranty is a contract between a company and its customers. From BP stand point, the warranty gives BP an additional protection from buying the telescopic joint. From GE oi & Gas, the warranty gives GE the responsibility to repair or replace the product if it is damaged or faulty. c. G Firms must make several judgments to account for contingencies. For example, with respect to the warranty on the telescopic joint, GE Oil and Gas must estimate how many joints will require servicing (failure rate), of those, how many will actually be serviced (i.e., how many customers will remember that the product is under warranty and make a claim to GE Oil and Gas to get it fixed), and the projected cost per repair. For GE...
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...obligations noted as provisions in the lease agreement? ● Provision 1: “Lessor may require the lessee to perform general repairs and maintenance on the leased premises.” By entering the lease agreement, NeedsSpace (the lessee) becomes legally and contractually responsible for performing general repair and maintenance on the leased premises. Assuming that the lessee is required to make deposits to financially protect the lessor concerning the maintenance obligation by setting up a reserve, the guidance in ASC 840-10-05-9A through 840-10-05-9C states that the maintenance reserve shall be recognized as a deposit asset and reimbursed later when the required repair and maintenance is completed by the lessee. However, the provision in the lease agreement does not call upon the lessee to make deposits but simply requires the lessee to perform repair and maintenance on the leased premises. Alternative 1: Accrual Method Since there is a contractual liability for the lessee to perform general repair and maintenance, the maintenance requirement provision may be assumed as a present economic obligation, not just a future commitment. If the fair value estimate of future maintenance expense can be measured with sufficient reliability, the provision may lead to recognition of an accrued liability for the repair and maintenance performance obligation at the inception of the lease. The accrued liability for the repair and maintenance can be reversed when payment is made or liability is created...
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...adoption of the fair market alternative that allows companies to record some financial instrument at fair value in financial statements (Kimmel, 2013). The third step is acknowledging the complexity and universality of recognizing the area of revenues in fiscal reporting. FASB and IASB have also collaborated in the development of a new single revenue recognition standard. Both FASB and IASB are of the opinion that transparency and comprehension of financial statements can increase if companies record and report all financial instruments at fair value. Some of the criticism on both FASB and IASB is that they represent a split model. The critics claim that some financial instruments state at fair value. Some loans and receivables (reported assets) with remunerated cost can create an illusion two companies. The notion of one business is looking for two results from similar securities accounting for those securities in different methods (Kimmel, 2013). It is being hinted that possibly IFRS 9 would be revised or replaced as the FASB and IASB, to proceed with the best approach for financial tools. IFRS 9-1: IFRS requires...
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...affect companies in a variety of different ways especially if IFRS becomes a mandatory practice for the United States and thus, all accounting information changes would have to be retroactive. Depreciation and Fair Value One large difference between GAAP and IFRS is the aspect of component depreciation. According to Marie Leone from CFO.com, component depreciation means that companies must “recognize and depreciate equipment components separately if the components can be physically separated from the asset and have different useful lifespans” (Leone, 2010). This method of evaluating assets is required by IFRS but not by GAAP. While this practice is allowed to be conducted by GAAP it does not have the same requirement that IFRS does. Being able to evaluate all of the components for an asset would provide a more accurate figure for better or worse. This leads into how an asset can be valued. Both the IASB and FASB have agreed that streamlining the process of evaluating an asset at the measurement of “fair value” is for the best. Both entities have agreed...
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... |097 | |05 |Esrat Jahan |061 | Date of submission August 30, 2012. 1. Commercial Banks Commercial Bank is a major player of the context of a country’s economy. As a financial intermediary it plays a very crucial role. In a developing country like us bank is the major and sometime the only reliable source of savings and landing. In identifying the components of balance sheet of commercial bank almost same items are found in both in Property & Asset and Liabilities & Capital. As a sample I have taken four banks- Mercantile Bank Ltd., One Bank Ltd., Bank Asia Ltd and Prime Bank Ltd. The common items of a balance sheet of commercial bank follows- |Items |Weight | |Property & Assets | | |Loans & Advances...
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...respect to contingent liabilities, the proposal suggests that current obligations are the only ones to consider when accounting for liabilities, which in themselves should be stated separately from the events which may dictate their occurrence. The uncertainty of the events themselves should also be disclosed, when presenting the measurements for the liability. Additionally, defining contingency with regard to the amount required to settle a liability rather than the probability of its occurrence will aid the goal of better recognition rather than simple disclosure. Similarly, with respect to contingent assets, the proposed changes require elimination of the term “contingent asset,” and clarify that purely the rights associated with a past transaction or event give the ability to recognize an asset as such, to be controlled by an entity. The amendment proposal also inquires into the need for further guidance on how the creation of a constructive obligation is incurred, and proposes to omit the criterion of probability recognition, due to the contingent liabilities proposed change of recognizing the liability and applying contingency as a term solely for the amount and not the possibility of the liability. With regard to measurements, the proposal adds non-financial liability measurement to be determined in terms of the amount an entity would rationally pay to settle the present obligation, states the cash flow method as viable for measuring the above named liabilities, and...
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...measurement of “fair value”, component depreciation, the revaluation of plant assets, product development expenditures, contingent liabilities, and the accounting for liabilities. Moving to Fair Value Measurement To the average person, the meaning of “fair value” would seem to have one meaning but this is not the case under GAAP and IFRS. “Under IFRS 1-3, the fair value of a financial liability is the cost to transfer it to another market participant in an orderly transaction at the measurement date. This is subtly different to how the fair value of a financial liability is determined under the previous rules in IAS 39 where the fair value of a financial liability is the amount at which it could be settled between knowledgeable, willing parties in an arm's-length transaction” (McCarroll & Khatri, 2012). “The Accounting Standards Update (ASU) provides a converged meaning of "fair value," defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date" (FASB and IASB issue common fair value measurement and disclosure requirements, 2011). Although the GAAP and IFRS are working toward a common meaning for this term, no agreement has been made to date. Component depreciation Although the GAAP and IFRS work similarly regarding depreciation, the IFRS implies component depreciation to assets. ”IFRS...
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...of view. E.g. corporate jets and huge officers with expensive art Risk aversion – managers and shareholders may prefer different levels of risk when it comes to project selection. Shareholders would generally prefer more risky investment because they are well diversified and know that any loss will be offset by another investment. Managers however are generally not as diverse, if the firm suffers a substantial loss, their salaries may be at risk, or it would be extremely difficult to find another job. Hence managers are usually more reluctant to take risk than the shareholders. Agency cost of debt Claim dilution – The value of existing debtholders’ claims can be diluted by the issue of additional debt of the same or higher priority. Asset substitution – If a firm sells debt for the stated purpose of investing in a low risk project, for example like a building, and subsequently invests in a high risk project, for example mineral exploration, the value of the debt falls while that of the equity rises. Accounting Standards Harmonisation Benefit – For users, consistency in interpretation of financials * For preparers, reduced costs in restating and reconciling reports Disadvantages – culture differences,...
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