Under IAS 37, when should a provision be recognised?
Answer and explanation
Correct answer: B. When there is a present obligation from a past event, an outflow is probable and the amount can be reliably estimated
- Step 1: IAS 37 sets three conditions: a present obligation (legal or constructive) from a past event, a probable outflow of economic benefits, and a reliable estimate.
- Step 2: All three must be met before recognition.
- Step 3: The other options are looser or stricter than IAS 37.
Answer
When there is a present obligation from a past event, an outflow is probable and the amount can be reliably estimated.
Why not the others: A mere intention or plan does not create an obligation, so a provision cannot be recognised. Remote outflows are not provided for and are not even disclosed. A reliable estimate is enough; a contract is not needed.
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