334 / 488
Chapter
29 /
Provisions, Contingent Liabilities, and Contingent Assets (lAS 37)
325
7.2.3 In case a contributor has an obligation to make add itional contribut ions (e.g., in the eve nt of
the bankruptcy of another contributor), this obligation is a continge nt liability that is within the
sco pe of lAS 37, which shall be disclosed as per disclosure requ irements of lAS 37.
7.3 IFRIC Interpretation 6
7.3 .1 The European Union's Directive on Waste Electrical and Elect ronic Equipment (WE
&
EE)
has given rise to que stions about when the liability for the decommissioning of "WE
&
EE" shall
be recog nized. Thi s Interpretation provides guidance on the recognition of liabilities for was te
management under this EU Directive.
7.3.2 IFRIC was asked to determine in the context of the decommissioning of "WE
&
EE" as to
what constitutes the "o bligating eve nt" in accordance with lAS 37. Whether (a) it is "ma nufacture
or sale of the histori cal household equipment" or (b) it is " the participation in the market during the
measurement period," or (c) it is the " incurrence of costs in the performance of waste management
activities" and as per the "consensus" (b) above triggers the "o bliga ting eve nt" under lAS 37 at
which point a liability has to be recognized .
8.
DISCLOSURES
8.1
Where inflow of economic benefits is probable, an entity should disclose a brief description
of the nature of the contingent assets at the balance sheet date and , whe re practicable, an estimate
of their financial estimate.
8.2 Where any of the information required above is not disclosed because it is not practicabl e to
do so, the fac t should be disclosed .
8.3
In extremely rare circ umstances, when disclosure of any or all the above inform ation is con–
sidered to be seriously prejudicial to the position of the entity in a dispute with other parties on the
subjec t matte r of the cont ingent asse t, an entity need not disclose the info rmation but should dis–
close the genera l nature of the dispute, together with the fact that, and reason why, the information
has not been disclosed.
Case Study 6
Facts
A Singapore-based shipping company lost an entire shipload of cargo valued at $5 million on a voyage
to Australia.
It
is. however, covered by an insura nce policy. Acco rding
to
the report of the surveyor the
amount is collecti ble, subjec t to the ded uctib le clause (i.e.• 10% of the claim) in the insurance policy. Be–
fore year-e nd. the shipping company rece ived a letter from the insurance company that a check was in
the mail for 90% of the claim.
The international freight forwarding company that entrusted the shipping company with the delivery of
the cargo overseas has filed a lawsuit for $5 million, claimin g the value of the cargo that was lost on
high seas, and also consequential damages of $2 million resulting from the delay. Acco rding to the legal
counsel of the shipping company, it is probable that the shipping company would have to pay the $5
million, but it is a remote possibility that it would have to pay the additional $2 million cla imed by the
international freight forwarding company. since this loss was specifically excl uded in the freight–
forwarding contract.
Required
What provision or disclosure would the shipping company need to make at year -end?
Solution
The shipping company would need to recogn ize a contingent asset of $4.5 million (the amount that is
virtually certain of collection). Also it would need to make a provision for $5 million toward the claim of
the international freight forwarding company. Because the probability of the claim of $2 million is re–
mote, no provision or disclosure would be needed for that.