Which of the following statements about contingent assets and contingent liabilities are correct?

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.

The following items have to be considered in finalising the financial statements of Q, a limited liability company:

1. The company gives warranties on its The company's statistics show that about 5% of sales give rise to a warranty claim.
2. The company has guaranteed the overdraft of another The likelihood of a liability arising under the guarantee is assessed as possible.

According to IAS 37 Provisions, Contingent Liabilities and Contingent assets, Which of the following items should be Disclosed By Note Only in the financial statements?

Montague's paint shop has suffered some bad publicity as a result of a customer claiming to be suffering from skin rashes as a result of using a new brand of paint sold by Montague's The customer launched a court action against Montague in November 20X3, claiming damages of $5,000. Montague's lawyer has advised him that the most probable outcome is that he will have to pay the customer $3,000.

What amount should Montague include as a provision in his financial statements for the year ended 31 December 20X3?

$         

When a provision is needed that involves a number of outcomes, the provision is calculated using the expected value of expenditure.

The expected value of expenditure is the total expenditure of:

Which of the following items does the statement below describe?

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, 'A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control'

Doggard Co is a business that sells second hand If a car develops a fault within 30 days of the sale, Doggard Co will repair it free of charge.

At 30 April 20X4 Doggard Co had made a provision for repairs of $2,500. At 30 April 20X5 Doggard Co calculated that the provision should be $2,000.

What entry should be made for the provision in Doggard Co's statement of profit or loss for the year to 30 April 20X5?

Wanda Co allows customers to return faulty goods within 14 days of At 30 November 20X5 a provision of $6,548 was made for sales returns. At 30 November 20X6, the provision was re-calculated and should now be $7,634.

What should be reported in Wanda Co's statement of profit or loss for the year to 31 October 20X6 in respect of the provision?

Which of the following best describes a provision according to IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

A former director of Biss Co has commenced an action against the company claiming substantial damages for wrongful dismissal. The company's solicitors have advised that the former director is unlikely to succeed with his claim, although the chance of Biss Co paying any monies to the ex-director is not remote. The solicitors' estimates of Biss Co's potential liabilities are:

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, how should this claim be treated in Bliss Co's financial statements?

Which of the following statements about the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are correct?

1. A contingent asset should be disclosed by note if an inflow of economic benefits is probable.
2. No disclosure of a contingent liability is required if the possibility of a transfer of economic benefits arising is remote.
3. Contingent assets must not be recognized in financial statements unless an inflow of economic benefits is virtually certain to arise.

Which of the following statements about provisions and contingencies is TRUE?

Mobiles Co sells goods with a one year warranty under which customers are covered for any defect that becomes apparent within a year of purchase. In calendar year 20X4, Mobiles Co sold 100,000 units.

The company expects warranty claims for 5% of units sold. Half of these claims will be for a major defect, with an average claim value of $50. The other half of these claims will be for a minor defect, with an average claim value of $10.

What amount should Mobiles Co include as a provision in the statement of financial position for the year ended 31 December 20X4?

X Co sells goods with a one year warranty and had a provision for warranty claims of $64,000 at 31 December During the year ended 31 December 20X1, $25,000 in claims were paid to customers. On 31 December 20X1, X Co estimated that the following claims will be paid in the following year:

What amount should X Co record in the statement of profit or loss for the year ended 31 December 20X1 in respect of the provision?