Extended Learning Question
1. The following are likely to be provisions within the scope of BAS 37. Justify
a. Obligation to repair or replace goods sold if found defective.
b. Warranty provided for a car sold by a supplier.
Answers
Answer:
For some ACCA candidates, specific IFRS® standards are more favoured than others. IAS® 37 appears to be less popular than other standards because, usually, answers to Financial Reporting (FR) questions required a balanced discussion of whether criteria are met, as opposed to calculating numbers. However, IAS 37 is often a key standard in FR exams, and candidates must be prepared to wrestle with applying the criteria.
For some ACCA candidates, specific IFRS® standards are more favoured than others. IAS® 37 appears to be less popular than other standards because, usually, answers to Financial Reporting (FR) questions required a balanced discussion of whether criteria are met, as opposed to calculating numbers. However, IAS 37 is often a key standard in FR exams, and candidates must be prepared to wrestle with applying the criteria.This article will consider the aims of the standard, followed by the key specific criteria which must be met for a provision to be recognised. Finally, it will examine some specific issues which are often assessed in relation to the standard.
For some ACCA candidates, specific IFRS® standards are more favoured than others. IAS® 37 appears to be less popular than other standards because, usually, answers to Financial Reporting (FR) questions required a balanced discussion of whether criteria are met, as opposed to calculating numbers. However, IAS 37 is often a key standard in FR exams, and candidates must be prepared to wrestle with applying the criteria.This article will consider the aims of the standard, followed by the key specific criteria which must be met for a provision to be recognised. Finally, it will examine some specific issues which are often assessed in relation to the standard.The definition of a provision is key to the standard. A provision is a liability of uncertain timing or amount, meaning that there is some question over either how much will be paid or when this will be paid. In the past, these uncertainties may have been exploited by companies trying to ‘smooth profits’ in order to achieve the results they believe that their various stakeholder may want.
For some ACCA candidates, specific IFRS® standards are more favoured than others. IAS® 37 appears to be less popular than other standards because, usually, answers to Financial Reporting (FR) questions required a balanced discussion of whether criteria are met, as opposed to calculating numbers. However, IAS 37 is often a key standard in FR exams, and candidates must be prepared to wrestle with applying the criteria.This article will consider the aims of the standard, followed by the key specific criteria which must be met for a provision to be recognised. Finally, it will examine some specific issues which are often assessed in relation to the standard.The definition of a provision is key to the standard. A provision is a liability of uncertain timing or amount, meaning that there is some question over either how much will be paid or when this will be paid. In the past, these uncertainties may have been exploited by companies trying to ‘smooth profits’ in order to achieve the results they believe that their various stakeholder may want.For example, let’s take a fictional company, Rey Co. At the start of the year, Rey Co sets a profit target of $10m for the year ended 31 December 20X8. The chief accountant of Rey Co has reviewed the profit to date and realises they are likely to achieve profits of $13m. The accountant knows that if Rey Co reports a profit of $13m, directors will not get any more of a bonus than if they reported $10m. He also knows that the profit target will be set at $14m in the next year.