Question

PROVISION LIABILITY (IFRS)

1. A new product liability lawsuit was files related to the drug of the Pharmacy, the attorney’s asses the likelihood and allows the company to record a loss under IFRS. If the range of estimates is between $30,000 and $50,000. How the company accounted this transaction under IFRS.

2. A new product liability lawsuit was files related to the drug of the Pharmacy, the attorney’s asses the likelihood of losing of 10%. The attorney assessment is between $10,000 and $50,000.

a. How the company accounted this transaction under IFRS.

b. The answer will be difference under US GAAP. Explain your answer.

Note: Under US GAAP the equivalent term is CONTINGENCY LIABILITY.

Answer 1

Question (a)

Case 1:

under IFRS 37, you need to book provision only when:

- a present obligation due to past events

- payment is probable

- amount can be estimated reliably

So as per IFRS 37, take highest amount which can be paid and and discount that to pre tax discount rate.

So provision will be made with $50,000 discounted at pre tax discount rate.

case 2:

No need to book as provision, only in notes of accounts we can show that contingent liability may be 50,000.

Quesion (b)

case 1:

answer will remain same as above

case 2:

answer will remain same as above