Which of the following would NOT be valid reason for recording a provision?

Which of the following statements are correct in accordance with IAS 37 Provisions, contingent
liabilities and contingent assets?
(i) Provisions should be made for both constructive and legal obligations.
(ii) Discounting may be used when estimating the amount of a provision.
(iii) A restructuring provision must include the estimated costs of retraining or relocating
continuing staff.
(iv) A restructuring provision may only be made when a company has a detailed plan for the
restructuring and has communicated to interested parties a firm intention to carry it out.

Talal Limited (TL) year-end is 30 September 2014 and the following potential liabilities have been
identified:
Which TWO of the following should TL recognize as liabilities as of 30 September 2014?

Iron Limited (IL) deals extensively with foreign entities, and its financial statements reflect these
foreign currency transactions. After SFP date, and before the “date of authorization” of the issuance
of financial statements, there were abnormal fluctuations in foreign currency rates. IL should:

The following information has been extracted from the records of Simple Limited (SL):
1. SL operates a chemical plant that has polluted the surrounding countryside. The Board
of Directors has decided to clean up the environmental damage. This decision has been
published in the local press on 15 June 2018. However, SL is not legally required to clean
up the environmental damage.
2. SL has decided to close down one of its operating segments. However, the decision was
made public after 30 June 2018.
In the financial statements for the year ended 30 June 2018, SL should recognize a provision for
the best estimate of costs in respect of:

Which of the following events arising after the year-end is an adjusting event?

Operating segment information should:
(i) increase the number of reported segments and provide more information
(ii) enable users to see an undertaking through the eyes of management
(iii) enable an undertaking to provide timely segment information for external interim reporting
with relatively low incremental cost
(iv) enhance consistency with the management discussion and analysis or another annual report
disclosures
(v) provide various measures of segment performance
(vi) provide information about reduced staff

An operating segment is a component of an undertaking
(i) that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the
same undertaking)
(ii) whose operating results are regularly reviewed by the undertaking’s chief operating
decision-maker to make decisions about resources to be allocated to the segment and
assess its performance
(iii) for which discrete financial information is available
(iv) which is taxed separately from other components

A component of an undertaking that sells primarily or exclusively to other operating segments of the
undertaking.

IFRS 8 shall apply to
(i) listed companies
(ii) any company reporting under IFRS that wishes to provide the information
(iii) all other companies reporting under IFRS

An operating segment may engage in business activities for which it has yet to earn revenues, for
example, start-up operations and it:

Head office expenses:

Two or more operating segments may be aggregated into a single operating segment if aggregation
is consistent with the core principle of IFRS 8, the segments have similar economic characteristics,
and the segments are similar in each of the following respects:
(i) the nature of the products and services
(ii) the nature of the production processes
(iii) the type or class of client for their products and services
(iv) the methods used to distribute their products or provide their services
(v) if applicable, the nature of the regulatory environment, for example, banking, insurance or
public utilities
(vi) staff numbers

Which TWO of the following events occur after the reporting date of an entity but before the
financial statements are authorized for issue are classified as adjusting events in accordance with
IAS 10 Events after the Reporting Period?

In a review of its provisions for the year ended 31 March 2015, entity’s assistant accountant has
suggested the following accounting treatments:
(i) Based on past experience, a Rs. 200,000 provision for unforeseen liabilities arising after
the year end.
(ii) The partial reversal (as a credit to the statement of profit or loss) of the accumulated
depreciation provision on an item of the plant because the estimate of its remaining useful life
has been increased by three years.
(iii) Providing Rs. 1 million for deferred tax at 25% relating to an Rs. 4 million revaluations of
property during March 2015 even though the entity has no intention of selling the property in the near future.

(iv)  Which of the above-suggested treatments of provisions is/are permitted by IFRS Standards?

Canon Limited (CL) is being sued by a customer for Rs. 2 million for breach of contract over a
canceled order. CL has obtained a legal opinion that there is a 20% chance that CL will lose the case.
Accordingly, CL has provided Rs. 400,000 (Rs. 2 million × 20%) in respect of the claim. The
unrecoverable legal costs of defending the action are estimated at Rs. 100,000. These have not
been provided for as the case will not go to court until next year.
What is the amount of the provision that should have been made by CL in respect of above
information?

During the year Platinum Limited acquired an iron ore mine at a cost of Rs. 600 million. In addition,
when all the ore has been extracted (estimated ten years’ time) the company will face estimated
costs for landscaping the area affected by the mining that has a present value of Rs. 200 million.
These costs would still have to be incurred even if no further ore was extracted.
At which amount the mine should be recognized?

Titanium Limited (TL) is preparing its financial statements for the year ended 30 September 2017.
TL is facing a number of legal claims from its customers with regards to a faulty product sold.
The total amount being claimed is Rs. 3.5 million. TL’s lawyers say that the customers have an 80%
chance of being successful.
According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, what amount, if any,
should be recognized in respect of the above in TL’s statement of financial position as at 30
September 2017?

Alpha Limited has a year-end of 31 December 2014. On 15 December 2014, the directors publicly
announced their decision to close an operating unit and make a number of employees redundant.
Some of the employees currently working in the unit will be transferred to other operating units within
Alpha Limited.
The estimated costs of the closure are as follows: Rs. 000
Redundancy costs 800
Lease termination costs 200
Relocation of continuing employees to new locations 400
Retraining of continuing employees 300
1,700

What is the closure provision that should be recognized?

On 1 October 2013, X Limited commenced drilling for oil in an undersea oilfield. The extraction of
oil causes damage to the seabed which has a restorative cost (ignore discounting) of Rs. 10,000
per million barrels of oil extracted. X Limited extracted 250 million barrels of oil in the year ended 30
September 2014.
X Limited is also required to dismantle the drilling equipment at the end of its five-year license. This
has an estimated cost of Rs. 30 million on 30 September 2018. X Limited’s cost of capital is 8% per
annum and Re. 1 has a present value of 68 paise in five years’ time.
What is the total provision (extraction plus dismantling) which X Limited would report in its statement
of financial position as of 30 September 2014 in respect of its oil operations?

According to IFRSs, if a financial report contains both consolidated financial statements of a parent, as well as the parent’s separate financial statements, segment information is required: