*Conceptually, all liabilities are measured at present value

1. The essence of provision is that there is an uncertainty about the timing or amount of the
future expenditure.
2. Recognition of provision
a. present obligation- legal or constructive
b. probable outflow of benefit
c. amount of obligation can be measure reliably
3. Constructive obligation is derived from entitys actions. Creates a valid expectation
4. An accounting provision cannot be created in anticipation of future event.
5. An entity shall determine whether a present obligation exists at the end of reporting period by
taking into account all available evidence, including the opinion of experts. Evidence considered
includes any additional evidence provided by events after the end of the reporting period
6. The estimates of outcome are determined by the judgement of management of the entity
supplemented by the experience of similar transactions and reports from independent experts
7. Midpoint of the range is used
8. Other measurement considerations:
a. Risks and uncertaintiesdescribes the variability of outcome. May increase or
decrease the amount of liability. Prudence is required
b. present value
c. Future eventsthere must be sufficient evidence that they will occur (new legislation,
changes in technology)
d. Cash inflows from disposal are treated separately from provision
e. Reimbursement shall be treated as a separate asset and not netted against estimated
liability
f. Change in provisionshould be reversed if it is no longer probable
g. Expectation of future operating losses is an indication that certain assets may be
impaired. An impairment test is necessary.
9. Restructuring is a program that is planned and controlled by management and materially
changes either the scope of a business of an entity or the manner in which that business is
conducted
a. Sale or termination of a line of business
b. closure of business location or relocation
c. Change in management structure
d. fundamental reorganization of an entity
10. In Provision for restructuring there must be a detailed plan and valid expectation
11. It shall include only direct expenditures that are necessarily incurred for the restructuring and
not associated with the ongoing activities of the entity. Example: salaries and benefits of
employees to be incurred after operations cease and that are associated with the closure of
operation. It excludes:
a. cost of retraining and relocating continuing staff
b. Mktg and admin
c. Investment in new system and distribution network.
*These are considered to be expenses relating to the future conduct of business.
12. Onerous contract is measured at the least net cost of exiting from the contract or the lower of
cost between to pay for the penalty of not fulfilling it or for the lease payments.
Bonds payable