IAS 37 Provision, contingent liabilities and contingent assets aims to make sure that suitable recognition criterion and measurement bases are applied to provisions, contingent liabilities and contingent assets.
Required:
a) Describe the recognition criteria for provisions.
b) Differentiate between a contingent asset and a contingent liability and when they must be disclosed.
c) After school party in 2011, 10 students were seriously felt ill as a result of food poisoning form products sold by Mobile Caterer Co. Legal proceedings are started seeking damages from Mobile Caterer however it disputes liability. Up to the date of approval of financial statements for the year ended 31 December 2012, Mobile Caterer’s lawyers advise that it is probable that it will not be found liable.
Though, when Mobile Caterer prepares the financial statements for the year to 31 December 2012, its lawyers advice that, owing to developments in the case, it is probable that it will be found liable.
d) What is the required accounting treatment?
- At 31 December 2011?
- At 31 December 2012?