Question 2 MFRS 137, Provision, Contingent Liabilities and Contingent Assets stipulates the criteria for provisions which must be met in order for a provision to be recognised, so that companies should be prevented from manipulating profits. According to MFRS 137, three (3) criteria are required to be met before a provision can be recognised. These are: i. An entity has a present obligation (legal or constructive) as a result of a past event. ii. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and iii. a reliable estimate can be made of the amount of the obligation.

Required: Explain each criteria by giving examples. (15 marks)