Under IAS 37, a liability is recognized when the contingency is described as:

Under IAS 37, a liability is recognized when the contingency is described as:

• A. Remote: 0-10% - Nothing
• B. Possible: 11-50% - Disclose
• C. Probable: >50% - Record
• D. Certain: Almost guaranteed - Record

Answer: (C)

Under IAS 37, a provision is recognized when there is a present obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle that obligation, with a reliable estimate of the amount available. In the scenario described, only when the likelihood of an outflow is more likely than not (probable, typically interpreted as greater than 50%) do you record a liability. If the likelihood is only possible (but not probable), you would disclose a contingent liability instead of recognizing a provision; if it is remote, you neither recognize nor disclose. So, when the contingency is described as probable, you record a liability (a provision) on the balance sheet and recognize the corresponding expense in the income statement, measured at the best estimate of the expenditure required to settle the obligation. The description “certain” implies an even higher likelihood, but recognition is still driven by the requirement that it be probable; the key threshold is the probability of an outflow, not certainty.

Under IAS 37, a provision is recognized when there is a present obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle that obligation, with a reliable estimate of the amount available. In the scenario described, only when the likelihood of an outflow is more likely than not (probable, typically interpreted as greater than 50%) do you record a liability. If the likelihood is only possible (but not probable), you would disclose a contingent liability instead of recognizing a provision; if it is remote, you neither recognize nor disclose.

So, when the contingency is described as probable, you record a liability (a provision) on the balance sheet and recognize the corresponding expense in the income statement, measured at the best estimate of the expenditure required to settle the obligation. The description “certain” implies an even higher likelihood, but recognition is still driven by the requirement that it be probable; the key threshold is the probability of an outflow, not certainty.