Understanding Australian Accounting Standards 3E - Loftus - SMch06_sm_loftus

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1、Chapter6:Provisions,contingentliabilitiesandcontingentassetsSolutionsManualtoaccompanyUnderstandingAustralianAccountingStandardsRuthPicker,KenLeo,JaniceLoftus,VictoriaWise&KerryClarkPreparedbyRuthPickerJohnWiley&SonsAustralia,Ltd20136.15©JohnWileyandSonsAustral

2、iaLtd2013Chapter6:Provisions,contingentliabilitiesandcontingentassetsChapter6:Provisions,contingentliabilitiesandcontingentassetsDiscussionQuestions1.Howispresentvaluerelatedtotheconceptofaliability?AASB137(para.42)requiresthattherisksanduncertaintiessurroundin

3、gtheeventsandcircumstancesshouldbetakenintoaccountinreachingthebestestimateofaprovision.AASB137requiresprovisionstobediscountedtopresentvaluewheretheeffectofdiscountingismaterial(paragraph45).Thediscountrateusedmustbeapre-taxratethatreflectsthetimevalueofmoneya

4、ndtherisksspecifictotheliability.Toavoiddouble-counting,wheretheestimatesoffuturecashflowshavebeenadjustedforriskthenthediscountrateshouldnotalsoreflecttheparticularrisk(paragraph47).Inpracticaltermsitisoftendifficulttodeterminereliablyaliability-specificdiscou

5、ntrate.Usuallyentitiesusearateavailableforaliabilitywithsimilartermsandconditionsor,ifasimilarliabilityisnotavailable,arisk-freerateforaliabilitywiththesameterm(forexampleagovernmentbondAssumedtoberisk-free,althoughthismaynotalwaysbethecase.withafive-yeartermma

6、ybeusedasthebasisforacompany’sspecificliabilitywithafive-yearterm)andthisrateisthenadjustedfortheriskspertainingtotheliabilityinquestion.2.Define(a)acontingencyand(b)acontingentliability.A“contingency”isnotdefinedinAASB137.InplainEnglishacontingencyisanunforsee

7、neventthatmayormaynothappen.AASB137definesa“contingentliability”atparagraph10.Ithastwolimbstothedefinition:(a)apossibleobligationthatarisesfrompastevents;or(b)apresentobligation(liability)thatfailstherecognitioncriteria.Thedefinitionatparagraph10is:“(a)apossibl

8、eobligationthatarisesfrompasteventsandwhoseexistencewillbeconfirmedonlybytheoccurrenceornon-occurrenceofoneormoreuncertainfutureeventsnotwhollywithinthecontroloftheentity;or