CERTYNEX IFRS ACADEMY

Corvessa owes probable compensation of 64,000 to a customer for a delivery delay that occurred in 20X5; the three recognition conditions are met. The accountant recorded: debit retained earnings (equity) 64,000, credit provision 64,000. Where is the error?

The amount: the provision should have been discounted, as payment is due in three months.

The existence of the provision: compensation for delay is only a contingent liability.

The other side of the entry: the provision should have been charged as an expense of the period, not to equity.

The amount: twice the compensation should have been provided for out of prudence.