Obligating event | Annualreporting.info

Sales warranties

The Case: Example on recognising and measuring provisions  Sales warranties

A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On the basis of experience, it is probable (ie more likely than not) that there will be some claims under the warranties.

Considerations Sales warranties

Present obligation as a result of a past obligating event—the obligating event is the sale of the product with a warranty, which gives rise to a legal obligation.

An outflow of resources embodying economic benefits in settlement—probable for … Read more

Obligation

Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. However, obligations do not have to be legally binding.

If, for example, an entity decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, the costs that are expected to be incurred in respect of goods already sold are liabilities. What are obligations?

Obligations do not include future commitments. What are obligations?

Some liabilities can be measured only by using a substantial degree of estimation. Some entities describe these liabilities as provisions. In some countries, … Read more

Accounting for government levies

What is a levy? Accounting for government levies

A levy is defined as an outflow of resources (embodying economic benefits) that is imposed by governments (including government agencies and similar bodies whether local, national or international) on entities in accordance with legislation (i.e., laws and/or regulations).

When do I record a liability to pay a levy? Accounting for government levies

  • The obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation.
  • The activity that triggers payment may occur “over time” (e.g., revenue generating activities occurring during a year) or be at a “point-in-time” (e.g., a specified date or when a transaction occurs).
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Leasehold makegood and restoration provisions

Lease makegood / leasehold restoration provisions should be recognised in relation to properties held under operating leases. Such a provision may arise because many property leases contain clauses under which the lessee has to make good dilapidations or other damage which occurs to the property during the course of the lease or restore a property to a specified condition.

Overview Leasehold makegood and restoration provisions leased office

Under IAS 37 14, a provision shall be recognised when: Leasehold makegood and restoration provisions leased office

  • “An entity has a present obligation (legal or constructive) as a result of a past event;
  • It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation;
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