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[Solved] MGT401 GDB Solution & Discussion Fall 2019
MGT401 Financial Accounting II GDB Solution & Discussion Fall 2019
According to IAS 37, a company can recognize a provision against liability if it means the following conditions:
1. There is present obligation arises as a result of past event, in absence of past event; we follow the constructive obligation based on similar past practices.
2. Settlement of which results in probable transfer of economic benefits.
3. Estimation of the amount of the obligation is measurable.
Noted: Provision cannot be recognized if either of the condition is not met.
The following phrase, taken out from the last line of the paragraph, has helped me to answers the questions connected with IAS 37.
“The company has created the provision for this purpose”.
1. Is there is a present obligation as a result of a past event?
Ans: Yes, present obligation available in the form of constructive obligation resulted from the company’s practices on the similar projects.
2. Is there a probable transfer of economic benefit?
Ans: Yes, transfer of economic benefit is there, as decommissioning cost has been measured using the unit production method which is amount of extracted oil.
3. Can the amount of the outflow be reasonably estimated?
Ans: Yes, using historical data of similar projects of past, the reasonable amount of the outflow can be estimated.
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