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Why are expense provisions forbidden?


Hello,

i would like to know why all expense provisions are forbidden.

At university we got an exercise with a expense provision for maintenance. The law says that the maintenace must be done.

Why is it not possible to have an expense provision for that?

asked Jan 16, 2017 in IAS 37 - Provisions, Contingent Liabilities and Contingent Assets by anonymous

1 Answer

0 votes
As per IAS 37 A provision shall be recognised when:
(a) an entity has a present obligation (legal or constructive) as a result of a past event;
(b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision shall be recognised.

As your description implies, maintenance is not yet done therefore there is no present obligation. So no provision is required.
answered Jan 18, 2017 by Jeremy Level 3 Member (6,160 points)


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