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Homework answers / question archive / 1)True Identify, by indicating the relevant box in the table below, whether each of the following statements about provisions and contingencies is true or false
1)True Identify, by indicating the relevant box in the table below, whether each of the following statements about provisions and contingencies is true or false. A company should disclose False details of the change in carrying amount of a provision from the beginning to the end of the year Contingent assets must be True Faise recognised in the financial statements in accordance with the prudence concept. True False Contingent liabilities must be treated as actual liabilities and provided for if it is probable that they will arise.
2)Identify, by clicking on the relevant box in the table below, whether each of the following statements about research and development expenditure are true or false, according to IAS 38 Intangible assets. True False True False Research expenditure, other than capital expenditure on research facilities, should be recognised as an expense as incurred. In deciding whether development expenditure qualifies to be recognised as an asset, it is necessary to consider whether there will be adequate finance available to complete the project. Development expenditure recognised as an asset must be amortised over a period not exceeding five years. True False
3) Identify, by indicating the relevant box in the table below, whether each of the following statements is correct or incorrect. Correct Incorrect Companies should never change the presentation or classification of items in their financial statements, even if there is a significant change in the nature of operations. Companies should create provisions in times of company growth to be utilised in more difficult times, to smooth profits. Correct Incorrect
1)a.) True. A company should disclose details of the change in carrying amount of a provision.
b.) False. Contingent asset is an asset that may accrue but it is contingent upon future event which are not under control of any entity. In accounting, recognition means including a transaction in financial statements. But since the asset has not accrued, it cannot be recognized.
c.) False. Contingent liability is a probable or possible liability and it's amount cannot be estimated. It is by no means an actual liability.
2)
| Research expenditure,other than Capital expenditure on research facilities,should be recognised as an expense as incurred. | True |
| In deciding whether development expenditure qualifies to be recognized as an asset, one of the factors it is necessary to consider is whether there will be adequate finance available to complete the project | True |
| Development expenditure recognized as an asset must be amortised over a period not exceeding five years. | True |
3)
Question 5
Sub-Question 1
The Statement is Incorrect.
A company should always maintain their presentation and classification of items in financial statements. However, if it is required so, a company can change the presentation and classification when there is a change in entity's operations and such change of presentation would be more relevant, i.e, if it helps in better understanding of the financials or the law or regulation requires the company to do so.
Hence, a company may change its presentation and classification based on its requirement.
Sub-Question 2
The Statement is Incorrect.
Provisions are created by setting aside from profit for an uncertain (amount) but expected liability. Example: Provision for bad-debts, etc. Here, we know that in the coming year, bad-debts will occur but we cannot ascertain a certain amount. Hence we create provision to cover for the same.
The amount set aside from profit to be utilised in more difficult times is called as Reserves. A company generally after distribution of dividends sets aside some amount for future use. Such amount is credited to reserves or retained earnings and not provisions.
