1. A provision is a type of liability.

A. True

B. False

2. A provision represents cash that the business has put aside in order to cover future payments.

A. True

B. False

3. Contingent liabilities are reported on the statement of financial position.

A. True

B. False

4. If a present obligation is less likely than not to exist and the related outflow of resources is probable, then a provision should be recognised.

A. True

B. False

5. If an obligation is more likely than not to exist and the related outflow of resources is probable, but its amount cannot be measured reliably

A. A contingent liability should be recognised as an expense

B. A provision should be recognised on balance sheet

C. Nothing should be recognised in the financial statements

6. Bristol plc needs to decide how to account for the following two legal claims:

i. A legal claim brought against the company by a customer. Bristol plc believes that the claim has no merit and it is confident of winning the case. Bristol plcs lawyers believe that there is a remote possibility that Bristol may need to make payments in relation to this claim.

ii. A legal claim brought against the company by a supplier. Bristol plc has accepted liability. The amount to be paid has not been agreed yet, but Bristol plcs lawyers have provided a reliable estimation of it.

Which one of the following statements describes the accounting that is most likely to be correct according to IAS 37?

A. Both claims should be accounted as provisions

B. Claim i) should be accounted as a provision

C. Claim ii) should be accounted as a provision

D. Both claims should be accounted as contingent liabilities

7. Cookie jar accounting is an inappropriate accounting practice which aims to

A. Boost the earnings recognised in a future accounting period

B. Create cash reserves that can be utilized in the future

C. Avoid recognising losses in the current accounting period, in order to avoid a negative market reaction

D. Manipulate the cash flow reported by the company in a given accounting period

E. None of the above