Remeasurement, unwinding and use

Learning objectives

• Explain the review at each reporting date and the reversal when an outflow is no longer probable.L1, L2
• Calculate the unwinding of the discount for the period and the movement in a provision (additions, amounts used, reversals).L2, L3
• Record the use, reversal and unwinding of the discount (borrowing cost) of a provision.L2, L3
• Identify the prohibition on setting expenditures against a provision that was not originally recognised for them.L1, L2

Normative references

• IAS 37 §59Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate; if an outflow of resources is no longer probable, the provision is reversed.
• IAS 37 §60Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time; this increase is recognised as borrowing cost.
• IAS 37 §61A provision is used only for expenditures for which it was originally recognised.
• IAS 37 §62Only expenditures that relate to the original provision are set against it; setting expenditures against a provision that was originally recognised for another purpose would conceal the impact of two different events.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

13 questions

• Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate.L1
• A provision for which an outflow of resources is no longer probable is kept until the end of the proceedings that gave rise to it.L1
• For which expenditures may a provision be used?L1
• Xelmont may charge its restructuring costs against the excess of its litigation provision, which has become too high, rather than reversing that excess.L2
• At 1 January 20X6, Yvrande's discounted restoration provision amounts to {opening_provision}, computed at a rate of {discount_rate}%. No other change occurs in 20X6. Compute the unwinding of the discount for 20X6.L2
• Zelvane's provision for decommissioning an offshore wind turbine, whose future nominal cost is estimated at {nominal_cost}, is carried at {carrying_amount_start} in the opening statement of financial position, discounted at {rate}%. What expense due to the passage of time does Zelvane recognise for the year, with no other change?L3
• Albrecq's discounted provision for restoring a quarry amounts to {opening_balance} at the beginning of the year; the discount rate is {rate}%. Record the unwinding entry for the year.L2
• Bréhavel had provided {provision_balance} for a dispute with a distributor. In March, the dispute is finally closed by a settlement of {settlement_paid}, paid immediately. Record the entries.L2
• Cazerelle had set up a provision of {clean_up_provision} to clean up a former storage area. The works, completed and accepted without reservation in November, cost {works_paid}, paid to the contractor. The authority has issued its final clearance. Record the use and the treatment of the balance.L3
• At the reporting date, Dumarec reviews its provision for a commercial dispute, carried at {carrying_amount}. New evidence in the case brings the current best estimate to {revised_estimate}. Compute the additional provision expense for the year.L3
• Évrane recognised the annual unwinding of the discount on its decommissioning provision, i.e. 31,000, within "operating provision expenses", together with the new provisions for the year. What is the error?L2
• Fargel has a provision of 150,000 for a dispute that will ultimately be settled for 60,000. Its accountant charges against the balance of 90,000 the costs of relocating an administrative department, incurred during the year, instead of expensing them. What is the error?L2
• During the year, a customer of Galmont dropped the action it had brought; no outflow of resources is probable any more. What happens to the provision of 120,000 recognised last year?L2