Contingent liabilities can be:
A、Probable.
B、Remote.
C、Reasonably possible.
D、Estimable.
E、All of the choices are correct.
A、Probable.
B、Remote.
C、Reasonably possible.
D、Estimable.
E、All of the choices are correct.
Which one of the following about contingent liabilities is not true?
A.Contingent liabilities are potential obligations that will become liabilities only if certain events happen in the future.
B.It is not necessary for contingent liabilities to be disclosed.
C.Litigation and guarantees are examples of contingent liabilities.
D.None of the above.
(a) The existing standard dealing with provisions IAS 37, Provisions, Contingent Liabilities and Contingent Assets, has been in place for many years and is sufficiently well understood and consistently applied in most areas. The IASB feels it is time for a fundamental change in the underlying principles for the recognition and measurement of non-financial liabilities. To this end, the Board has issued an Exposure Draft, ‘Measurement of Liabilities in IAS 37 – Proposed amendments to IAS 37’.
Required:
(i) Discuss the existing guidance in IAS 37 as regards the recognition and measurement of provisions and why the IASB feels the need to replace this guidance; (9 marks)
(ii) Describe the new proposals that the IASB has outlined in the Exposure Draft. (7 marks)
(b) Royan, a public limited company, extracts oil and has a present obligation to dismantle an oil platform. at the end of the platform’s life, which is 10 years. Royan cannot cancel this obligation or transfer it. Royan intends to carry out the dismantling work itself and estimates the cost of the work to be $150 million in 10 years time. The present value of the work is $105 million.
A market exists for the dismantling of an oil platform. and Royan could hire a third party contractor to carry out the work. The entity feels that if no risk or probability adjustment were needed then the cost of the external contractor would be $180 million in ten years time. The present value of this cost is $129 million. If risk and probability are taken into account, then there is a probability of 40% that the present value will be $129 million and 60% probability that it would be $140 million, and there is a risk that the costs may increase by $5 million.
Required:
Describe the accounting treatment of the above events under IAS 37 and the possible outcomes under the proposed amendments in the Exposure Draft. (7 marks)
Professional marks will be awarded in question 4 for the quality of the discussion. (2 marks)
What do shareholders expect to increase?
A.Total assets.
B.Working capital.
C.Total liabilities.
D.Owners' equity.
1 A contingent asset should be disclosed by note if an inflow of economic benefits is probable.
2 A contingent liability should be disclosed by note if it is probable that a transfer of economic benefits to settle it
will be required, with no provision being made.
3 No disclosure is required for a contingent liability if it is not probable that a transfer of economic benefits to settle
it will be required.
4 No disclosure is required for either a contingent liability or a contingent asset if the likelihood of a payment or
receipt is remote.
A 1 and 4 only
B 2 and 3 only
C 2, 3 and 4
D 1, 2 and 4
A、become convertible to equity
B、convert automatically to equity
C、increase the equity conversion ratio
D、空
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