The following items have to be considered in finalising the financial statements of F, a limited liability company:
According to IAS 37 provisions, contingent liabilities and contngent assets, what is the correct action to be taken in the financial statements for these items?
| 1 | The company gives warranties on its products. The company's statistics show that about 5% of sales give rise to a warranty claim |
| 2 | The company has guaranteed the overdraft of another company. The likelihood of a liability arising under the guarantee is assessed as possible |
| 3 | A contingent asset that an inflow of economic benefits is probable. |
| 4 | A contingent asset that an inflow of economic benefits is virtually certain to arise |
| 5 | A contingent asset that an inflow of economic benefits is remote. |
| 6 | A contingent liability that the possibility of a transfer of economic benefits arising is remote. |
| 7 | Contingent liabilities that the outflow of economic benefits is probable. |
Suggested Solutions
| Action | ||
| 1 | The company gives warranties on its products. The company's statistics show that about 5% of sales give rise to a warranty claim | Create Provision |
| 2 | The company has guaranteed the overdraft of another company. The likelihood of a liability arising under the guarantee is assessed as possible | Disclose by note |
| 3 | A contingent asset that an inflow of economic benefits is probable. | Disclose by note |
| 4 | A contingent asset that an inflow of economic benefits is virtually certain to arise | Create Provision |
| 5 | A contingent asset that an inflow of economic benefits is remote. | No Action |
| 6 | A contingent liability that the possibility of a transfer of economic benefits arising is remote. | No Action |
| 7 | Contingent liabilities that an outflow of economic benefits is probable to arise. | Create Provision |