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To constituate provisions, it is necessary to unite three conditions. Which ones?

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Question added by Nadjib RABAHI , Freelancer , My own account
Date Posted: 2016/08/29
Saeed Ur Rehman
by Saeed Ur Rehman , Senior Manager Audit & Advisory , Afrasiab Tanveer & Co Chartered Accountants

As per International Accounting Standard IAS-37, Provision should be recognised when the following three conditions are satisfied:

1.There must be a present obligation (legal or constructive) arised as a result of past event (obligating event).

2. The outflow of the economics benefits to satisfy the obligation must be probable (i.e more than 50% probable)

3. The amount of economic benefits required to satisfy the obligation must be reliably estimated.

Jafar  Ali Wahed Mohammed
by Jafar Ali Wahed Mohammed , Finance Manager , Al Jubiri Group

As per IAS 37, A Provision has to be recognised only when, 

 

a) There is a present obligation arising out of the Past Events

b) It will result into outflow of Economic resources of the enterprise. 

c) A realiable estimate of the amount can be made. 

 

The above are the three conditions associated with recognition of the Provisions in the Finance Statements. 

Nadjib RABAHI
by Nadjib RABAHI , Freelancer , My own account

To constitute provisions, it is necessary to reunite three conditions:

  1. The existence of an obligation towards a third party at the close of the year,
  2. The obligation will probably trigger an unrequited resource output,
  3. The amount of the provision should reflect the best possible assessment to the Closing Date.

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