PART 2: Provisions and contingent Liabilities Comprehension questions How is present value related to the concept of a liability? Define (a) a contingency and (b) a contingent liability. What is the key characteristic of a present obligation? What are the recognition criteria for provisions? Application and analysis exercises Explain how a borrowing cost could arise as part of the measurement of a provision. Illustrate your explanation with a simple example. When should liabilities for each of the following items be recorded in the accounts of the business entity? - Acquisition of goods by purchase on credit - Salaries - Annual bonus paid to management - Dividends The government introduces a number of changes to the goods and services (value added) tax system. As a result of these changes, Stitchers Ltd, a manufacturing company, will need to retrain a large proportion of its administrative and sales workforce to ensure compliance with the new tax regulations. At the end of the reporting period, no retraining of staff has taken place. Required Should Stitchers Ltd provide for the costs of the staff training at the end of the reporting period