Question

Which of the following help determine when a provision is recognised in the statement of financial position?

Item I A present obligation as a result of a future event.
Item II The provision amount must be measured accurately.
Item III An outflow of economic benefits to settle the obligation is probable.
Item IV The provision amount can be measured reliably, even if it has to be estimated.

A. I and III only
B. III and IV only
C. I, II and IV only
D. I, III and IV only

Answer 1

Provisions are recognised in the statement of financial position when there is a present obligation from past events, an outflow of resources to settle the obligation is probable, and the amount can be reliably estimated. Therefore, the correct answer is I, III and IV only.

Step-by-step explanation:

The question asks about the criteria for recognising a provision in the statement of financial position (balance sheet). According to the International Accounting Standards (IAS 37), a provision should be recognised when: (I) there is a present obligation as a result of past events, (III) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (IV) the amount of the provision can be estimated reliably.

Thus, the correct answer is (D) I, III and IV only. Item II is incorrect because while the provision amount must be measured, the requirement is for it to be estimated reliably, not accurately. The word 'accurately' implies a higher level of precision than what is often possible with estimates of provisions.