Question bank — IAS 37 — Provisions, Contingent Liabilities and Contingent Assets
226 questions in FR/EN/ES, scored by the real scoring engine.
Objective of the standard4 questions
- The objective of IAS 37 is limited to setting recognition criteria for provisions; what the entity states in its notes about these items is governed entirely by other standards.True / falseL1
- IAS 37 seeks to ensure that appropriate measurement bases are applied not only to provisions but also to contingent liabilities and contingent assets.True / falseL1
- Which set of items does the objective of IAS 37 target?Single choiceL1
- Under the objective of IAS 37, which aspects of provisions and contingencies should the notes enable users to understand?Single choiceL1
Scope, executory contracts and other standards15 questions
- An executory contract that is not onerous is outside the scope of IAS 37.True / falseL1
- The "provision for doubtful receivables" account kept by Bramont is a provision as defined in IAS 37.True / falseL1
- Which of these situations is an executory contract as described in IAS 37?Single choiceL1
- Calvérane has granted a guarantee that falls within the scope of IFRS 9. Which standard determines its accounting treatment?Single choiceL1
- Which of these items fall under a standard other than IAS 37 that deals with that specific type of liability?Multiple choiceL1
- A contract with a customer accounted for under IFRS 15 that becomes onerous falls under IAS 37 for the expected loss.True / falseL2
- Estrévia's trial balance includes an account named "provision for depreciation of machinery". How should it be classified under IAS 37?Single choiceL2
- On 1 October 20X5, Falcoris signs a lease of a warehouse with a commencement date of 1 March 20X6. In December 20X5, the loss of a customer makes this contract onerous. Which standard deals with this loss at the reporting date of 31 December 20X5?Single choiceL2
- Grenadel has firmly committed to buy 2,000 tonnes of wood pellets at the agreed fixed price, for delivery in 20X6; no delivery or payment has taken place at 31 December 20X5. The market price has risen slightly and the pellets will be resold at a margin. What should be concluded at the reporting date?Single choiceL2
- IAS 37 requires every cost recognised when a provision is set up to be expensed.True / falseL2
- Hautvane plans to discontinue a business that meets the definition of a discontinued operation. How do IAS 37 and IFRS 5 interact for the restructuring provision?Single choiceL2
- Ilmarée presents several accounts named "provision". Which of them correspond to a provision as defined in IAS 37?Multiple choiceL2
- On acquiring Junivel, Lumaret undertakes to pay the seller an additional price if Junivel's revenue exceeds a threshold in 20X7. Under which standard does Lumaret account for this contingent additional price?Single choiceL2
- Novélia measures its uncertain income tax for the year under IAS 37.True / falseL1
- Orsalis leases a storage unit for 10 months; it has elected to account for this short-term lease under paragraph 6 of IFRS 16, as an expense of the period. Following the discontinuation of a product range, the unit is empty and the contract has become onerous. Which standard deals with this situation?Single choiceL2
Provisions, liabilities, obligations and contingencies13 questions
- Under IAS 37, a provision is a liability of uncertain timing or amount.True / falseL1
- Which statement best describes an obligating event under IAS 37?Single choiceL1
- A constructive obligation can arise only from a signed contract or a piece of legislation.True / falseL1
- Which of these sources give rise to a legal obligation under IAS 37?Multiple choiceL1
- In December, Pellicor received and accepted an invoice of 18,400 for parts delivered, payable in February. How should this amount be classified at the reporting date?Single choiceL1
- An accrual may require an estimate, but the uncertainty surrounding it is generally much less than for a provision.True / falseL1
- A consulting firm completed an engagement for Quintane in December at the agreed hourly rate; the hours are known, but the invoice of 7,350 will arrive only in January. How does Quintane present this amount at the reporting date?Single choiceL2
- A contingent liability is recognised as a liability as soon as its amount is material.True / falseL2
- Which of these situations correspond to a contingent liability?Multiple choiceL2
- All provisions involve some uncertainty. Why, then, does IAS 37 not describe them as "contingent"?Single choiceL2
- At its reporting date, Rosvald has three items: (1) legal fees for a hearing held in December, at the agreed rate, not yet invoiced; (2) a customer claim for which Rosvald denies any liability, its advisers considering an unfavourable ruling possible but unlikely; (3) the repairs expected on products sold under warranty, estimated from past experience. Justify the classification of each item: accrual, provision or contingent liability.JudgmentL2
- On 20 December, Talvène's board decides, in a meeting, to refund dissatisfied customers in future beyond its contractual obligations. Nothing has been announced externally and this was not a practice of the company. Is there a constructive obligation at the reporting date of 31 December?Single choiceL1
- Explain in your own words what IAS 37 means by "onerous contract" and by "restructuring", then state what these two notions have in common with the definition of a provision.JudgmentL1
The three recognition conditions14 questions
- A provision is recognised as soon as two of the three IAS 37 recognition conditions are met.True / falseL1
- Which conditions must be met to recognise a provision?Multiple choiceL1
- Under IAS 37, when is an outflow of resources "probable"?Single choiceL1
- When an outflow of resources is not probable, the entity discloses a contingent liability, unless the possibility of an outflow is remote.True / falseL1
- A customer of Ulmara was injured in November 20X5 by a defective appliance sold by Ulmara. At the reporting date of 31 December 20X5, Ulmara's advisers consider its liability established and compensation probable; the best estimate of the amount payable is …. Record the entry at the reporting date.Journal entryL1Variant
- In October 20X5, Vérandis's plant discharged effluent into a river above the limits allowed by law. The authority has opened proceedings; at the reporting date of 31 December 20X5, a fine is probable and its best estimate, based on the statutory scale, is …. Record the year-end entry.Journal entryL2Variant
- Wexhal sells thousands of radiators each year with a two-year warranty; for each radiator taken individually, the probability of a repair is low. How should it assess whether an outflow of resources is probable?Single choiceL2
- Xandrel sold 4,000 scooters in 20X5 with a one-year contractual warranty. Based on its history, each scooter has a 3% chance of needing a repair. What does Xandrel conclude at 31 December 20X5?Single choiceL2
- When the amount of a present obligation is uncertain, the entity refrains from recognising a provision and only discloses it in the notes.True / falseL2
- In an extremely rare case, a present obligation exists and the outflow is probable, but no reliable estimate of its amount is possible. What is the treatment?Single choiceL2
- Zorvane is being sued by a distributor it removed. Its lawyers consider an adverse ruling probable, with damages of between 300,000 and 500,000 depending on the court's assessment of the loss. The finance director proposes to recognise nothing "for lack of a reliable amount". What should be concluded?Single choiceL3
- 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?Single choiceL2
- Dalmeri sold 25,000 coffee makers with a one-year warranty. Its controller concludes: "Each coffee maker has only a 2% risk of failure; no outflow is probable, so no provision." What is the error in reasoning?Single choiceL2
- For five separate present obligations of Elvarin, all of which can be reliably estimated, the probability of an outflow of resources is estimated as follows. Which give rise to a provision?Multiple choiceL3
Present obligation and obligating event20 questions
- When it is not clear whether there is a present obligation, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that one exists at the reporting date.True / falseL2
- To assess whether a lawsuit creates a present obligation at the reporting date, which evidence does the entity take into account?Single choiceL2
- A supplier is claiming penalties from Fontrel for breach of a supply contract. At the reporting date, Fontrel disputes the claim; its lawyers nevertheless consider it more likely than not that the court will find a wrongful breach, and the penalties can be reliably estimated. Payment would then be probable. What does Fontrel conclude?Single choiceL3Variant
- Local residents are suing Gavrelle, which they accuse of causing cracks in their houses during works. The appointed experts conclude that it is more likely than not that the cracks come from natural ground movement; a risk of an adverse ruling remains, without being remote. What does Gavrelle conclude at the reporting date?Single choiceL3Variant
- Fines incurred for illegal pollution already caused may give rise to a provision, because the obligation exists independently of the entity's future actions.True / falseL2
- A new regulation requires Brisaco to fit its paint shop with a soundproofing system by 20X7 if it wants to keep operating it. At the 20X5 reporting date, nothing has been installed. Should Brisaco recognise a provision for the cost of the installation?Single choiceL2
- Celtane is reviewing five expenditures at its reporting date. Which correspond to a present obligation that may give rise to a provision?Multiple choiceL2
- Durmanel may recognise a provision this year for the costs it will have to incur next year to keep operating its plant.True / falseL2
- On 18 December 20X5, Ferlac's board decides to provide free replacement of a series of water heaters, beyond the warranty. The customers concerned are informed only by a letter dated 12 January 20X6. Is there a constructive obligation at 31 December 20X5?Single choiceL3
- Galvane's accountant recognised a provision of 210,000 for a buy-back programme for defective products, supported only by the minutes of the executive committee of 28 December approving the programme. No announcement has been made to customers or distributors. What is the error?Single choiceL3
- An obligation exists under IAS 37 only if the entity knows the precise identity of the party to which it is bound.True / falseL3
- Between 20X1 and 20X4, Haldric stored waste on its land, which the law then allowed. In November 20X5, a law is enacted requiring operators to clean up land contaminated in this way. When does Haldric's clean-up obligation arise?Single choiceL3
- Isarne operates a quarry in a country where no law requires sites to be restored. In September 20X5, its chairman publicly announces, with figures and a timetable, that Isarne will restore the areas already worked; the local press and elected officials report it. What is the position at 31 December 20X5?Single choiceL3
- A bill under discussion would require manufacturers to collect their old appliances; its detailed content has not yet been finalised. From when does a legal obligation arise for Junivel?Single choiceL2
- Korrane recognised a provision of 380,000 for a recycling levy provided for in a bill still being debated in Parliament; several amendments changing the tax base are under discussion and the vote is uncertain. What is the error?Single choiceL3
- For a past event to be an obligating event, which condition must it meet?Single choiceL2
- Laudric, which operates car washes, has for six years published on its website an "environmental charter" undertaking to treat the polluted sludge of its former stations, which it has always done. At 31 December 20X5, three stations closed during the year contain sludge; in addition, management is considering installing new retention tanks in 20X6 in the stations still open, with no legal obligation. Write a memo analysing the obligations to be provided for, distinguishing the rules of the standard, the case data and judgement.JudgmentL4
- Mirelan, which runs a leisure park, is being sued by visitors injured when a footbridge collapsed in August 20X5. At 31 December, its lawyers are divided; an expert report delivered on 25 January 20X6, before the financial statements are authorised, establishes that the collapse resulted from a maintenance failure attributable to Mirelan. Write a memo concluding on whether a present obligation exists at 31 December and on its treatment, stating the evidence used and the element of judgement.JudgmentL4
- Nordak operates cold-storage warehouses. A regulation requires the refrigeration units using a now-banned fluid to be replaced by the end of 20X7, failing which the warehouses can no longer be operated; the replacement is estimated at 900,000. Nordak could also sell or close the warehouses before that date. At 31 December 20X5, what should be concluded?Single choiceL4
- On 20 January 20X6, before the financial statements are authorised, a court orders Obervane to compensate a former partner for a breach committed in 20X5. The accountant keeps at 31 December 20X5 the mere contingent liability identified in November, on the grounds that "the judgment is after the reporting date". Where is the error?Single choiceL3
Contingent liabilities14 questions
- A contingent liability is recognised in the statement of financial position when its amount is material to the entity.True / falseL1
- Pradane faces a possible obligation; the outflow of resources is neither probable nor remote. Which treatment applies?Single choiceL1
- When the possibility of an outflow of resources is remote, no disclosure is required for the contingent liability.True / falseL1
- Which statements about contingent liabilities are correct?Multiple choiceL2
- Pradane and two other manufacturers jointly polluted a river; they are jointly and severally liable for the clean-up, estimated at …. The two other manufacturers are solvent and Pradane expects to bear …% of the cost, in line with their sharing agreement. Compute the amount Pradane recognises as a provision and the amount treated as a contingent liability.CalculationL2Variant
- A consortium formed by Sorvane and a partner has been ordered to pay … to a project owner; both members are jointly and severally liable. The consortium agreement allocates …% of the charge to Sorvane. The partner, in financial difficulty, will probably be unable to pay a portion of its share equal to …% of the total amount, which Sorvane expects to have to pay. Compute Sorvane's provision and the amount it treats as a contingent liability.CalculationL3Variant
- In a joint and several obligation, how does the entity treat the part expected to be met by the other parties?Single choiceL2
- An item treated as a contingent liability at one reporting date keeps that treatment until it is settled, even if an outflow of resources later becomes probable.True / falseL2
- At the end of 20X4, Tesmara disclosed a customer claim as a contingent liability, the outflow then being merely possible. In October 20X5, new evidence makes an adverse ruling probable and the compensation estimable. What is the treatment at 31 December 20X5?Single choiceL2
- At 31 December 20X5, Urvane discloses as a contingent liability a dispute with a carrier whose outcome is possible. In March 20X6, after the 20X5 financial statements were authorised, new testimony about facts that occurred in February 20X6 makes an adverse ruling probable; the compensation can be estimated. How is this change reflected?Single choiceL3
- Vilmontane has a present obligation towards a former subcontractor, but its advisers consider a payment merely possible: the outflow is neither probable nor remote. Which treatment applies?Single choiceL2
- Wendrel owns, in equal shares with two other solvent companies, a pipeline whose leak polluted neighbouring land. The … co-owners are jointly and severally liable for the clean-up, costed at …; each expects to bear an equal share. What amount does Wendrel disclose as a contingent liability?CalculationL3
- At 31 December 20X5, Yselle reviews three files: (1) a possible obligation whose outflow is considered remote; (2) a possible obligation whose outflow is possible; (3) a file disclosed as a contingent liability in 20X4, whose outflow became probable and estimable in 20X5. Which overall treatment is correct?Single choiceL3
- An entity that is jointly and severally liable for an obligation always provides for the full amount, since the creditor can claim all of it from the entity.True / falseL2
Contingent assets14 questions
- An entity does not recognise a contingent asset.True / falseL1
- Zéphane has sued a supplier; its lawyers consider it probable, but not virtually certain, that compensation will be obtained. Which treatment applies?Single choiceL1
- By symmetry with provisions, a contingent asset is recognised as soon as an inflow of economic benefits is probable.True / falseL1
- From what degree of probability does an inflow of economic benefits related to a contingent asset lead to recognising an asset?Single choiceL1
- Lorcane is training its accountants on the treatment of claims it brings against third parties. Which of these propositions should be retained?Multiple choiceL2
- Since 20X3, Delmara has been suing a former competitor for compensation; until now, the asset was only disclosed in the notes. On 15 November 20X5, a final decision, with no possible appeal, orders the competitor, which is fully solvent, to pay …, payable in February 20X6. Record the entry at 31 December 20X5.Journal entryL2Variant
- Escaline was claiming compensation from an installer for a defect that had stopped a production line; the outcome was uncertain. On 10 December 20X5, the parties sign an irrevocable settlement: the installer, whose solvency is not in doubt, will pay … on 15 January 20X6. Record the entry at 31 December 20X5.Journal entryL3Variant
- Fiorane has filed a claim against a former distributor for breach of an exclusivity clause. At the reporting date, its lawyers consider it probable that it will obtain compensation, but the hearing has not taken place and the amount is still disputed. What does Fiorane do?Single choiceL2
- On 5 December 20X5, a court of first instance orders a supplier to pay 310,000 to Gorvald. The supplier appealed on 20 December and Gorvald's lawyers consider the outcome of the appeal favourable but not assured. What does Gorvald recognise at 31 December 20X5?Single choiceL3
- Why does IAS 37 prohibit recognising a contingent asset?Single choiceL2
- When an inflow of economic benefits becomes virtually certain, the asset and the related income are recognised in the financial statements of the period in which the change occurs.True / falseL2
- Irdane is both the defendant in a dispute with a customer (adverse ruling probable, amount estimable) and the claimant in a dispute against a subcontractor (gain probable, amount estimable). Neither outcome is virtually certain. What is the overall treatment?Single choiceL3
- Which of these situations at Jasmor best illustrates a contingent asset?Single choiceL2
- When the realisation of income has become virtually certain, the related asset remains a contingent asset, merely disclosed in the notes.True / falseL3
Best estimate, expected value and most likely outcome16 questions
- The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date.True / falseL1
- How does IAS 37 describe the best estimate of the expenditure required to settle an obligation?Single choiceL1
- Kalvane measures its litigation provision net of the tax saving that payment of the compensation will provide.True / falseL1
- Kalvane sold … dishwashers with a two-year warranty in 20X5. Based on its history, …% of the appliances will need a minor repair (… each), …% a major repair (… each) and …% a replacement (… each); the others will have no defect. Compute the warranty provision at 31 December 20X5 (the effect of discounting is not material).CalculationL2Variant
- The electric bicycle maker Lorcane covers for one year the … bicycles delivered in 20X5. Its workshop statistics forecast: an adjustment on …% of the bicycles (… per job), a motor replacement on …% (…), a frame change on …% (…). What provision does Lorcane recognise at the reporting date, discounting having no material effect?CalculationL3Variant
- Marvaline must compensate a customer for the delivery of non-compliant parts. Its experts estimate that the compensation will fall within a continuous range from … to …, every amount in the range being equally likely. Compute the provision.CalculationL2Variant
- A fire in a warehouse leased by Nestane damaged the premises of a neighbour, towards which Nestane is liable. The estimate of the repair works varies continuously between … and …, with no amount more likely than another. What amount should be provided for?CalculationL2Variant
- Opaliane must remedy a roof leak in a warehouse it delivered to a customer. A first intervention would cost 140,000 and is the most likely individual outcome; however, the experts consider the risk high that one or two further interventions, of 90,000 each, will be needed. How should the provision be set?Single choiceL3
- For a single obligation, Pyrane estimates the most likely outcome at 500,000, but most of the other possible outcomes are lower. What is the effect on the best estimate?Single choiceL3
- Querane sold … drills with a one-year warranty. It expects …% of them to be repaired, at an average cost of … per repair. No provision existed before. Record the entry setting up the provision at the reporting date.Journal entryL2
- Given the uncertainty surrounding a lawsuit, Rimbelle is entitled to deliberately overstate its provision to guard against a bad surprise.True / falseL3
- Solvéa's advisers estimate the compensation owed to a customer at between 400,000 and 700,000, with a markedly higher probability around 450,000. The finance director recognises a provision of 700,000 "out of prudence". Where is the error?Single choiceL3
- Tarvène sold 40,000 kettles under warranty. For each kettle, the most likely outcome is no defect; the accountant therefore recognised no provision, although history shows that 2% of kettles are replaced, at 25 each. Where is the error?Single choiceL3
- To estimate a litigation provision, which sources can Ulvane rely on?Multiple choiceL2
- Valcrest is being sued by a single customer for underperformance of a bottling line. Its lawyers see three outcomes: a settlement at 600,000 (probability 50%), an award of 900,000 (30%), an award of 1,400,000 (20%). The finance director proposes 1,400,000 "out of prudence", the controller 600,000 "the most likely outcome". Write a memo recommending an approach and an order of magnitude, distinguishing the rule, the case data and your judgement.JudgmentL4
- For a restoration provision, Wexmoor has prepared cash flows already increased by a 15% risk margin to reflect the uncertainty about the works. Its internal auditor proposes adding to the provision a second 10% margin "to cover the uncertainty", on top of the 15%. What should be concluded?Single choiceL4
Discounting and discount rate12 questions
- A provision is always measured at its nominal amount, whatever the timing of the cash outflow.True / falseL2
- What characteristics must the discount rate of a provision have?Single choiceL2
- Arnavel has undertaken to clean up land whose soil it contaminated. The expenditure, estimated at …, will be incurred in … years; the effect of discounting is material and the pre-tax rate used (case data) is …%. Compute the provision at the reporting date (rounded to the nearest unit).CalculationL2Variant
- A combined heat and power plant of Belmondane must be decommissioned in … years, at a cost estimated at … at that date's prices, already adjusted for the risks specific to decommissioning. The pre-tax rate reflecting the time value of money is …%; the corresponding post-tax rate is …%. What provision does Belmondane recognise today (rounded to the nearest unit)?CalculationL3Variant
- On 31 December 20X5, Cendral completes the construction of a telecommunications tower on public land; the permit requires it to dismantle the tower in … years, at an estimated cost of …. The pre-tax rate used is …%. The IAS 16 criteria for including the initial estimate of the dismantling cost in the cost of the tower are met (case data). Record the entry setting up the provision (amount rounded to the nearest unit).Journal entryL2Variant
- At the end of 20X5, Dorvalis brings into service a water treatment plant built on concession land. The concession requires the installations to be removed and the land returned in … years; the cost, estimated at …, is discounted at the pre-tax rate of …%. The IAS 16 criteria for including this initial estimate in the cost of the plant are met (case data). Record the provision when it is set up (amount rounded to the nearest unit).Journal entryL3Variant
- Elmara estimated the cash flows for restoring a site by increasing them with a margin for the risk of cost overruns. It then discounts these cash flows at a pre-tax rate increased by a premium for the same overrun risk. Where is the error?Single choiceL3
- Fervelline must decommission a test platform in 20 years, at an estimated cost of 3,000,000; the effect of discounting is material. Its accountant recognises a provision of 3,000,000. What is the error?Single choiceL2
- Galdrian must choose the discount rate for a restoration provision whose cash flows are already adjusted for all the risks specific to the obligation. It has four rates: 3.1% (post-tax risk-free rate), 6% (pre-tax rate including a premium for the obligation's risks), 4.2% (pre-tax rate reflecting only the current time value of money) and 2.5% (rate used when the provision was set up six years ago). Which rate should be used?Single choiceL3
- An entity may discount a provision at a post-tax rate as long as it applies that rate consistently.True / falseL3
- Hirvane has two provisions at its reporting date: (1) a settlement payment of 120,000 due in three months; (2) an obligation to restore a mining site, of 4,000,000, to be carried out in twelve years. How should discounting be dealt with?Single choiceL4
- Isomarel estimates the cash flows for decommissioning a terminal in amounts not adjusted for risk. The risks specific to the obligation (technical uncertainty, delays) are therefore not reflected in the cash flows. How should the discount rate take them into account?Single choiceL4
Future events and expected disposals9 questions
- The gain expected on the sale of land, linked to the closure of a site, is deducted from the provision for closure costs.True / falseL2
- Under what condition is a future event that may change the cost of settling an obligation reflected in the provision?Single choiceL2
- Jalvane will have to clean up a site in eight years. The cost, using proven techniques, is estimated at 2,000,000. A laboratory is testing an entirely new biological process that could halve this cost; no industrial-scale trial has yet succeeded. What cost should be used?Single choiceL3
- Each year, Kervane decommissions several similar installations using an existing technique. Independent technical studies, based on its recent projects, show that the experience gained will reduce by 10% the cost of the decommissioning planned in five years. Can it take this into account?Single choiceL3
- Lumenord is measuring an existing restoration obligation. Possible new legislation would tighten restoration standards. When does it take this into account in the measurement?Single choiceL2
- To include in its clean-up provision the effect of a stricter future law, what evidence must Moravel have?Multiple choiceL3
- Norvessa must clean up, for 650,000, an industrial site it is going to close; it then expects to sell the land at a gain of 400,000. The sale is closely linked to the closure. What amount should be provided for?Single choiceL2
- A gain expected on the disposal of assets is excluded from the provision even if the disposal is closely linked to the event giving rise to it; the gain is recognised at the time specified by the standard dealing with the assets concerned.True / falseL2
- Ombrée has an obligation to restore a landfill in ten years. A draft regulation, still under consultation and whose content changes from one version to the next, could require a thicker cover and increase the cost by 30%. What is the effect on the provision at the reporting date?Single choiceL3
Reimbursements expected from third parties10 questions
- A reimbursement expected from an insurer is recognised as soon as it is probable.True / falseL2
- How does Pellarine present in its statement of financial position a provision of 200,000 and a virtually certain reimbursement of 120,000 expected from its insurer?Single choiceL2
- Quilmar recognises a provision of … for fire damage caused to a customer. Its insurer has confirmed in writing that it will cover …, an amount virtually certain to be received if Quilmar compensates the customer. Compute the reimbursement asset and the net expense if Quilmar presents the expense net of the reimbursement in profit or loss.CalculationL2Variant
- Rovalis provides … for the recall of defective toys. The manufacturer of the faulty parts has irrevocably undertaken to pay it …, including a commercial compensation; this payment is virtually certain if Rovalis carries out the recall. Compute the reimbursement asset recognised and the net expense presented (option chosen by Rovalis).CalculationL3Variant
- Sablonne must compensate a neighbour for water damage caused by its installations; the best estimate is …. Sablonne remains liable for the whole amount towards the neighbour, but its insurer will virtually certainly reimburse …. Record the year-end entries (gross presentation in profit or loss).Journal entryL2Variant
- Taurelle must replace at its customers' premises boilers fitted with a defective burner; the best estimate of the cost is …. The burner supplier, under its contractual warranty, will virtually certainly reimburse …; Taurelle would nevertheless have to pay the full amount if that supplier defaulted. Record the provision and the reimbursement (gross presentation in profit or loss).Journal entryL3Variant
- Ulmeta has engaged a subcontractor to remove asbestos from a building. The contract signed with the owner provides that this subcontractor pays directly the costs of making safe an incident that occurred in 20X5, Ulmeta not being liable for them if the subcontractor fails to pay. How does Ulmeta account for these costs?Single choiceL3
- Vélanne is ordered to pay 500,000 to a customer. Its insurer has confirmed it will cover 350,000, which is virtually certain; if the insurer did not pay, Vélanne would remain liable for the full amount. What is the treatment in the statement of financial position?Single choiceL3
- Wilmara provided 70,000 for a loss caused to a third party. Its insurer will virtually certainly pay it 90,000, an amount that includes ancillary costs. The accountant recognised a reimbursement asset of 90,000 and a net gain of 20,000 on the claim. What is the error?Single choiceL3
- In the statement presenting profit or loss, the expense relating to a provision may be presented net of the amount recognised for a reimbursement, for example from an insurer.True / falseL2
Remeasurement, unwinding and use13 questions
- Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate.True / falseL1
- 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.True / falseL1
- For which expenditures may a provision be used?Single choiceL1
- Xelmont may charge its restructuring costs against the excess of its litigation provision, which has become too high, rather than reversing that excess.True / falseL2
- At 1 January 20X6, Yvrande's discounted restoration provision amounts to …, computed at a rate of …%. No other change occurs in 20X6. Compute the unwinding of the discount for 20X6.CalculationL2Variant
- Zelvane's provision for decommissioning an offshore wind turbine, whose future nominal cost is estimated at …, is carried at … in the opening statement of financial position, discounted at …%. What expense due to the passage of time does Zelvane recognise for the year, with no other change?CalculationL3Variant
- Albrecq's discounted provision for restoring a quarry amounts to … at the beginning of the year; the discount rate is …%. Record the unwinding entry for the year.Journal entryL2
- Bréhavel had provided … for a dispute with a distributor. In March, the dispute is finally closed by a settlement of …, paid immediately. Record the entries.Journal entryL2Variant
- Cazerelle had set up a provision of … to clean up a former storage area. The works, completed and accepted without reservation in November, cost …, paid to the contractor. The authority has issued its final clearance. Record the use and the treatment of the balance.Journal entryL3Variant
- At the reporting date, Dumarec reviews its provision for a commercial dispute, carried at …. New evidence in the case brings the current best estimate to …. Compute the additional provision expense for the year.CalculationL3
- 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?Single choiceL2
- 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?Single choiceL2
- 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?Single choiceL2
Future operating losses8 questions
- No provision is recognised for future operating losses.True / falseL1
- The retail chain Halvorine forecasts, for its network of town-centre shops, an operating loss of 1,200,000 in 20X6. What does it recognise at 31 December 20X5 for this loss?Single choiceL1
- Why can future operating losses not be provided for?Single choiceL2
- An expectation of future operating losses indicates that certain assets of the business may be impaired; the entity then tests them for impairment under IAS 36.True / falseL2
- At 31 December 20X5, Idrane recognised a "provision for 20X6 operating losses" of 430,000 for its vehicle hire subsidiary, whose 20X6 budget shows a loss. What is the error?Single choiceL2
- Jomarel expects operating losses at its profiles plant for the next three years. What must it do at the reporting date?Single choiceL2
- For its printing division, whose losses are expected to continue, Kesmar set up a provision for future losses of 800,000 and performed no impairment test, considering the risk "already covered". Which analysis is correct?Single choiceL2
- A future operating loss meets the definition of a liability as soon as it is included in a budget approved by the board of directors.True / falseL2
Onerous contracts and cost of fulfilling a contract17 questions
- If an entity has an onerous contract, the present obligation under the contract is recognised and measured as a provision.True / falseL2
- When is a contract onerous under IAS 37?Single choiceL2
- Lavrel has undertaken to maintain a customer's fleet of forklift trucks until the end of the contract. After the rise in spare-part prices, performing the contract would cost it … (cost of fulfilling calculated in accordance with the standard, case data) and bring it …. The contract allows Lavrel to exit by paying a penalty of …. Compute the onerous contract provision.CalculationL2Variant
- Morlane, an industrial cleaning contractor, remains bound for another … years by a contract to clean a customer's site. After the rise in wages, performing the contract will cost it … a year (cost of fulfilling calculated in accordance with the standard, case data), while the customer pays it … a year. Early termination would cost it compensation of …. The effect of discounting is not material. What amount does Morlane provide for?CalculationL3Variant
- To assess whether a contract to supply moulded parts is onerous, Nivelane lists the costs still to be incurred: direct labour …; direct materials …; share of the depreciation of the press used for this contract and others, using the key chosen by Nivelane (case data), …; share of head office administrative costs …. Compute the cost of fulfilling the contract.CalculationL3Variant
- Orvande must deliver, at a fixed price of …, components for which the contract provides no way out. Costs still to be incurred: incremental costs …; share of the depreciation of the press used …; share of the depreciation of moulds shared with other contracts …; share of general administrative overheads …. The shares result from the keys chosen by Orvande (case data). Compute the cost of fulfilling and the provision (no impairment of the equipment).CalculationL3Variant
- Pralune signed a fixed-price supply contract that has become onerous; no specific asset is used to fulfil it. The excess of the unavoidable costs over the expected benefits is …. Record the entry at the reporting date.Journal entryL2Variant
- The machining contract that Quirel concluded with an equipment manufacturer has become onerous. A machine is used exclusively to fulfil it; the test performed under IAS 36 shows an impairment loss of … (case data). After this impairment loss, the excess of the unavoidable costs over the expected benefits is …. Record the entries in the required order.Journal entryL3Variant
- A purchase order that Rézal can cancel without paying compensation creates no obligation, even if the price terms have become unfavourable to it.True / falseL3
- Salvère has firmly committed to buy paper in 20X6; neither party has yet performed its obligations. The paper will be processed and resold at a positive margin. What is the treatment of the contract under IAS 37?Single choiceL3
- Which of these costs of Tilvane are included in the cost of fulfilling a manufacturing contract?Multiple choiceL3
- Urbanel Méca concluded that a contract priced at 500,000 is not onerous: its incremental costs still to be incurred are 470,000. It did not take into account the share, determined using its allocation key (case data), of 60,000 of depreciation of the equipment used for this contract and others. What is the error?Single choiceL3
- For an onerous contract fulfilled using a dedicated packaging line, Valmondis recognised a provision for the whole expected loss without examining the value of the line, whose carrying amount nevertheless exceeds its recoverable amount. What is the error?Single choiceL3
- In 20X6, Wavrelle must deliver parts at a total fixed price of 1,020,000; the contract contains no exit clause. The remaining cost of fulfilling, computed in accordance with the standard, is 1,150,000. No asset is used exclusively for this contract. What does Wavrelle conclude at 31 December 20X5?Single choiceL3
- Xantela is fulfilling a waste treatment contract that has become onerous using an incinerator that it also uses for other customers. Management control proposes three approaches. Which one complies with the standard?Single choiceL4
- Yrvane has signed a firm, non-cancellable contract to deliver chassis over two years. Remaining incremental costs: 2,300,000; price still to be invoiced: 2,600,000. A press shared with other contracts could be allocated to the contract at 200,000 (key: machine hours) or 380,000 (key: tonnage). The press also shows an indication of impairment. Write a memo on whether the contract is onerous and on the recognition steps, distinguishing rule, data and judgement.JudgmentL4
- The unavoidable costs of a contract are always equal to its cost of fulfilling.True / falseL3
Restructuring: definition and constructive obligation19 questions
- Which of these projects of Aubrelle Logistique may constitute a restructuring as defined in IAS 37?Multiple choiceL2
- The relocation of business activities from one country to another is among the events that may constitute a restructuring.True / falseL2
- Which definition corresponds to a restructuring under IAS 37?Single choiceL2
- A restructuring provision is recognised only when the general recognition criteria for provisions are met.True / falseL2
- What are the two conditions for a constructive obligation to restructure?Single choiceL2
- What must Belcorvane's detailed formal restructuring plan identify, at a minimum?Multiple choiceL3
- A public announcement of the main features of a restructuring plan creates a constructive obligation only if it is made in such a way and in sufficient detail as to give rise to valid expectations.True / falseL2
- In November 20X5, the board of Casselane adopts a detailed plan to close its foundry unit (site, approximate headcount by function, costs, six-month timetable). In December, dismantling of the furnaces begins and equipment is sold. Is there a constructive obligation at 31 December 20X5?Single choiceL3Variant
- On 2 December 20X5, the regional bank Dauvrane approves a detailed plan to close 18 rural branches (list of branches, about 90 jobs by function, costs, timetable in the first half of 20X6). On 15 December, it gives the plan to the employee representatives and informs each customer concerned by letter of the closure dates. Is there a constructive obligation at 31 December 20X5?Single choiceL3Variant
- On 15 December 20X5, the board of Elbevane decides to close a plant; the detailed plan is announced to employees and customers only on 10 January 20X6, and nothing was started before the reporting date. The restructuring is material. What is the treatment at 31 December 20X5?Single choiceL3
- On 30 December 20X5, the management of Fresnelle approves a plan to cut head office staff by 15%. The plan remains confidential until its announcement planned for March 20X6 and no measure has been started. The accountant recognises a restructuring provision of 1,100,000 at 31 December 20X5. What is the error?Single choiceL3
- On 20 January 20X6, before the 20X5 financial statements were authorised, Gervalis announced the material closure of its packaging division, decided in January. It recognised no provision at 31 December 20X5, rightly, but its 20X5 notes say nothing about this restructuring. What is the error?Single choiceL3
- No obligation arises for the sale of an operation until the entity is committed to the sale, that is, until there is a binding sale agreement.True / falseL3
- In October 20X5, Hautrivane publicly announces its decision to sell its gardening line of business. At 31 December, there are contacts with two potential buyers, but no agreement has been signed. The sale is the whole restructuring. What does Hautrivane conclude?Single choiceL3
- Isinvale is restructuring its textile business: closure of two workshops (detailed plan announced to employees in November 20X5) and sale of a third workshop, for which no binding agreement has been signed at 31 December. What is the treatment at 31 December 20X5?Single choiceL4
- In December 20X5, Jarvenne announces to employees a closure plan that will begin only in 20X8 and run over five years. What effect does this timetable have on whether a constructive obligation exists?Single choiceL3
- Even if a management decision is not enough on its own to create a constructive obligation, an obligation may result from earlier events together with that decision.True / falseL3
- In a country where Kervellis's supervisory board includes employee representatives, that board approves on 12 December 20X5 a detailed plan to transfer production from two sites to a third, implemented from February to July 20X6. The plan is handed to the employee representatives on the same day; employees and customers will be informed only in January. Write a memo concluding on whether a constructive obligation exists at 31 December 20X5, distinguishing rule, data and judgement.JudgmentL4
- At 31 December 20X5, Lancevane has decided (board meeting of 5 December) to close its Rennavel plant and to sell its land and buildings. No announcement was made before the reporting date; the plan is announced on 15 January 20X6. A buyer has signed a non-binding offer. The restructuring is material. Write a memo on the treatment at 31 December 20X5 (provision, assets, disclosure).JudgmentL4
Restructuring provision: eligible expenditures10 questions
- Which expenditures may a restructuring provision include?Single choiceL2
- Moncelis is closing a warehouse as part of a restructuring. Which expenditures must be excluded from the provision?Multiple choiceL2
- Névillane has a constructive obligation to restructure at 31 December 20X5 (closure of its Bellerivane site). Estimated costs: compensation of employees made redundant …; termination penalties on the supply contracts of the closed site …; removal of equipment from the closed site …; training of continuing staff …; communication campaign on the new organisation …; new IT system for the remaining sites …. Compute the provision.CalculationL2Variant
- The Ondavelle group is consolidating its logistics activities and closing three warehouses; the constructive obligation exists at the reporting date. Data: severance payments …; warehouse closure costs …; operating losses expected from the warehouses until closure … (no onerous contract); gain expected on the sale of a warehouse …; relocation of continuing staff to the new site …. What amount should be provided for?CalculationL3Variant
- Pélissane has a constructive obligation to restructure at the reporting date; the eligible direct expenditures, measured at the best estimate, amount to …. Record the entry.Journal entryL2Variant
- Quinsavel is eliminating its regional management layer; the constructive obligation exists at 31 December. Estimated costs: compensation of the managers made redundant …; exit from the service contracts of the closed regional offices …; training of continuing managers in the new organisation …. Record the provision entry.Journal entryL3Variant
- Rochemaurel is closing its Valbrenne site; the direct restructuring expenditures amount to 1,600,000. It expects to sell the site at a gain of 700,000 and has recognised a net provision of 900,000. What is the error?Single choiceL3
- Saulnivel's restructuring provision includes 820,000 of direct expenditures and 260,000 of identifiable operating losses up to the closure date of the site, unrelated to any onerous contract. What is the error?Single choiceL3
- As part of closing its plant, Tavernelle identifies two losses expected up to the closure date: (1) the general operating loss of the plant; (2) the loss on a fixed-price delivery contract that has become onerous and must be performed until the last day. Which can be included in provisions at the reporting date?Single choiceL3
- Usselane is merging two head offices into one. Continuing staff will be relocated to the new head office, at a moving and installation cost of 310,000. Is this cost included in the restructuring provision?Single choiceL2
Disclosure of provisions8 questions
- For the reconciliation of each class of provision, comparative information for the previous period is not required.True / falseL2
- Valréane's "site restoration" class shows: opening provision …; provisions made …; amounts used …; unused amounts reversed …; increase due to the passage of time …. Compute the closing provision in the reconciliation.CalculationL2Variant
- For its "litigation and contractual warranties" class, Wimerane has: opening balance …; new provisions …; reversals of unused amounts …; unwinding and effect of the change in the discount rate …; closing balance …. What amount of provisions used must appear in the reconciliation?CalculationL3Variant
- For each class of provision, what qualitative information must Ardenay disclose?Multiple choiceL2
- Barvelle is considering presenting its normal product warranties and the amounts at stake in legal proceedings as a single "other provisions" class. Is this acceptable?Single choiceL3
- Cavelline's reconciliation for its "decommissioning" class shows an unexplained difference between the opening balance plus the movements presented and the closing balance. Additions, amounts used and reversals are correct. What is the most likely cause?Single choiceL3
- Where a provision and a contingent liability arise from the same set of circumstances, the disclosures are made in a way that shows the link between them.True / falseL3
- Dornavel is preparing its classes of provision. Which groupings meet the requirement of a sufficiently similar nature?Multiple choiceL4
Disclosure of contingent liabilities and assets10 questions
- Unless the outflow is remote, the entity briefly describes the nature of each class of contingent liability and, where practicable, gives an estimate of its financial effect, an indication of the uncertainties and the possibility of any reimbursement.True / falseL2
- From when must Ermolane describe a contingent asset in its notes?Single choiceL2
- For a contingent liability whose outflow is not remote, what information must Floravel disclose?Multiple choiceL2
- Where information required about a contingent liability or a contingent asset is not disclosed because it is not practicable to do so, that fact is stated.True / falseL3
- In the note describing probable compensation it is claiming from a former supplier, Gramalis wishes to write "income of 2,000,000 secured for 20X6". Which requirement does this wording disregard?Single choiceL3
- Hennevane is in dispute with a competitor; publishing its estimate of the financial effect could, in this extremely rare case, seriously prejudice its position in the ongoing negotiation. What may it do?Single choiceL3
- Issorane is reviewing three unrecognised files: (1) a claim against it, outflow considered remote; (2) a claim against it, outflow possible; (3) an action it has brought, gain considered merely possible. What does it disclose?Single choiceL3
- Jonzelle is being sued by a former partner for 12,000,000; an adverse ruling is possible but not probable. Its lawyers fear that a published estimate would weaken its position in the settlement negotiations under way. Management proposes writing nothing. Write a memo on the disclosure required, distinguishing rule, data and judgement.JudgmentL4
- Kaysmorel is claiming 3,500,000 from an insurer for a loss event; its lawyers consider it probable, though not certain, that compensation will be obtained, but no reliable estimate of its amount is practicable at the reporting date. The communications department proposes the sentence: "significant exceptional income is expected in 20X6". Write the note on this contingent asset and comment on the proposed sentence.JudgmentL4
- Lectorane faces an emerging class action whose outflow is possible; the number of claimants and the basis of the claims make any estimate of the financial effect impracticable at the reporting date. Which note complies?Single choiceL4