What is important in these scenarios is to find answers to the following questions:

Is there a present obligation as a result of a past obligating event?

Is a transfer of economic benefits probable during the settlement of the obligation?

Can a reliable estimate be made of the amount of the obligation?

If the answer to all questions is "yes", then a provision should be recognised in the

financial statements under IAS $37.$

g$)$ Legal Case

Ten people died at a wedding reception in January $2013,$ possibly as a result of food

poisoning from products sold by the entity. Legal proceedings have started seeking

damages from the entity, but it disputes liability. Up to the date of approval of the financial

statements for the year to $31$ Dec $2013,$ the entity's lawyers advise that it is probable that

the entity will not be found liable. However, when the entity prepares its financial

statements for the year to $31$ December $2014$ its lawyers advise that, owing to

developments in the case, it is probable that the entity will be found liable.

h$)$ Legal requirement to fit smoke filters

Under new legislation, an entity is required to fit smoke filters to its factories by $30$ June

At $31$ Dec $2013,$ the entity had not fitted the smoke filters.

i$)$ A single guarantee

During $2013$ Alpha PLC gives a guarantee of certain borrowings of Beta Ltd$,$ whose

financial condition at that time is sound. During $2014,$ the financial condition of Beta

deteriorates and at $28$ February $2014$ Beta files for protection from its creditors.

j$)$ Staff retraining as a result of changes in the income tax system

The government introduces a number of changes to the income tax system. As a result

of these changes an entity in the financial services sector will need to retrain a large

proportion of its admin staff and sales workforce in order to ensure compliance with

financial services regulation. At the balance sheet date no retraining of staff had taken

place.