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Accounting for Assets and Liabilities
Quick questions on Provisions and contingent liabilities explained: H2 Principles of Accounting
6short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is a provision?Show answer
A provision is a liability of uncertain timing or amount. It is recognised only when three conditions all hold:
What is a contingent liability?Show answer
A contingent liability is not recognised; it is only disclosed in the notes. It arises when either:
What is a contingent asset?Show answer
A contingent asset is a possible inflow from past events whose existence depends on uncertain future events. Prudence does not allow anticipating gains, so it is not recognised. It is disclosed only if the inflow is probable, and recognised as an asset only once it becomes virtually certain (at which point it is no longer contingent).
What is q1?Show answer
State the three conditions for recognising a provision. [3 marks]
What is q2?Show answer
A company is likely to win damages it cannot yet measure precisely. State the treatment. [2 marks]
What is q3?Show answer
Explain why a possible obligation that is not probable is only disclosed. [2 marks]
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