Problem 4-3 Multiple Choice (PAS 37)

1. Which of the following statements is true in relation to the measurement of a

provision?

I. The risk and uncertainties that inevitably surround many events and
circumstances shall be taken into account in reaching the best estimate of a
provision.

II. Where the effect of the time value of money is material, the amount of a
provision shall be the present value of the expenditure expected to settle the
obligation.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

2. Which of the following statements is true in relation to measurement of a

provision?

I. Future events that may affect the amount required to settle the obligation shall
be reflected in the amount of the provision where there is sufficient objective
evidence that the future events will occur.

II. Gains from expected disposal of assets shall be taken into account in
measuring a provision.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

3. Which of the following statements is incorrect concerning recognition of a

provision?

a. Provisions shall be reviewed at the end of each reporting period and adjusted to
reflect the current best estimate.
b. A provision shall be used only for expenditures for which the provision was
originally recognized.
c. A provisions shall be recognized for future operating losses.
d. If an entity has an onerous contract, the present obligation under the contract
shall be recognized and measured as a provision.
4. It is a contract in which the unavoidable costs of meeting the obligation under the
contract exceed the economic benefits to be received under the contract.

a. Onerous contract
b. Executory contract
c. Executed contract
d. Sale contract

5. The unavoidable costs under an onerous contract represent the least net cost of
exiting from the contract, which is equal to

a. Cost of fulfilling the contract

b. Penalty arising from failure to fulfil the contract
c. Lower of the cost of fulfilling the contract or the penalty arising from failure to
fulfil the contract
d. Higher of the cost of fulfilling the contract or the penalty arising from failure to
fulfil the contract.

ANSWERS:

1. C
2. A
3. C
4. A
5. C