Outside the Situation Where Specific Types of Provisions Are Covered

question 58

Multiple Choice

Outside the situation where specific types of provisions are covered in standards,a provision exists when and only when:

• A) The entity has a present legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain.
• B) There is a legal or constructive obligation to make a future sacrifice of economic benefits within the entity as a result of past transactions or other past events, the amount or timing of which is uncertain.
• C) The entity has a present legal obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events; and the amount or timing of the future sacrifice of economic benefits that will be made to satisfy the present obligation is uncertain.
• D) The amount, timing and entity to whom the obligation to sacrifice future economic benefits as a result of a past legal or constructive obligation are unknown.

---

Definitions:

Impairment Loss

The reduction in the recoverable value of an asset below its carrying amount, necessitating an adjustment on the financial statements.

Cost Method

An accounting method used to record investments, where the investment is recorded at cost and income is recognized only when dividends are received.

Sales Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.

Consolidated Income Statement

A financial statement that combines the income, expenses, and profits of a parent company and its subsidiaries.