IAS 37Chapter 5Lesson 2
Discounting, future events and gains on disposal
Step 1 of 7Learning objectives
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When a provision will be settled in several years and the effect of the time value of money is material, it is measured at the present value of the expected expenditures, using a pre-tax rate that reflects the time value of money and the risks specific to the liability not already reflected in the cash flows. Future events (technological change, new legislation) are reflected only where there is sufficient objective evidence that they will occur. Gains expected on the disposal of assets never reduce a provision.
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Learning objectives
- Calculate the present value of a future cash outflow when the effect of discounting is material.
- Determine the discount rate: pre-tax, reflecting the time value of money and the risks specific to the liability not already reflected in the cash flows.
- Record a discounted provision, as an expense or, where the standard governing the asset so requires (IAS 16 for the initial dismantling cost), in the cost of an item of property, plant and equipment.
- Determine whether a future event may be reflected in measurement, and exclude expected gains on disposal.