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1、wordACCA考试F7知识点辅导I. The accounting problemBefore IAS37 provisions were recognized on the basis of prudence， little guidance was given on when a provision should be recognized and how it should be measured. This gave rise to inconsistencies， and also allowed profits to be manipulated.Some problems ar
2、e noted below：(a) Provisions could be recognized on the basis of management intentions， rather than on any obligation to be entity;(b) Several items could be bined into one large provision. There were known as big bath provisions;(c) A provision could be created for one purpose and then used for ano
3、ther;(d) Poor disclosure made it difficult to assess the effect of provisions on reported profits. In particular， provisions could be created when profits were high and released when profits were low in order to smooth profits.(1) DefinitionsIAS 37 views a provision as a liability.A provision is a l
4、iability of uncertainty timing or amount;A liability is an obligation of an enterprise to transfer economic benefits as a result of past transactions or events.Provision must be based on obligations， not management intentions.(2) Under IAS37， a provision should be recognized：a. When an enterprise ha
5、s a present obligation;b. It is probable that a transfer of economic benefits will be required to settle it;c. A reliable estimate can be made of its amount; if a reasonable estimate cannot be made， then the nature of the provision and the uncertainties relating to the amount and timing of the cash
6、flows should be disclosed.A provision is made for something which will probably happen. It should be recognized when it is probable that a transfer of economic events will take place and when its amount can be estimated reliably.(3) Contingent liabilitiesDefinitionThe Standard defines a contingent l
7、iability as：(a) A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or(b) A present obligation that arises from past events but is not
8、 recognized because：(i) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or(ii) The amount of the obligation cannot be measured with sufficient reliability.As a rule of thumb， probable means more than 50% likely. If an obligation
9、is probable， it is not a contingent liability instead， a provision is needed.Treatment of contingent liabilitiesContingent liabilities should not be recognized in financial statements but they should be disclosed. The required disclosures are：(a) A brief description of the nature of the contingent l
10、iability;(b) An estimate of its financial effect;(c) An indication of the uncertainties that exist;(d) The possibility of any reimbursement;(4) Contingent assetsDefinitionA possible asset that arises from the past events whose existence will be confirmed by the occurrence of one or more uncertain fu
11、ture events not wholly within the enterprises control.A contingent asset must not be recognized. Only when the realization of the related economic benefits is virtually certain should recognition take place. At that point， the asset is no longer a contingent asset.Disclosure： contingent assetsContin
12、gent assets must only be disclosed in the notes if they are probable. In that case a brief description of the contingent asset should be provided along with an estimate of its likely financial effect.II. Specific application1. Future operating lossesIn the past， provisions were recognized for future
13、 operating losses on the grounds of prudence. However these should not be provided for the following reasons.They relate to future events;There is no obligation to a third party. The loss-making business could be closed and the losses avoided.2. Onerous contractsAn onerous contract is a contract in
14、which the unavoidable costs of meeting the contract exceed the economic benefits expected to be received under it.A mon example of an onerous contract is a lease on a surplus factory. The leaseholder is legally obliged to carry on paying the rent on the factory， but they will not get any benefit fro
15、m using the factory.The least net cost of an onerous contract should be recognized as a provision. The least net cost is the lower of the cost of fulfilling the contract or of terminating it and suffering any penalty payments.Some assets may have been bought specifically for the onerous contract. Th
16、ese should be reviewed for impairment before any separate provision is made for the contract itself.1DemoDroopers has recently bought all of the trade， assets and liabilities of Dolittle， an unincorporatd business. As part of the take-over all of the bined businesss activities have been relocated at Droopers main site. As a result Dolittles premises are now empty and surplus to requirements.However， just before the acquisition Dolittl
