Would it be better to classify this as a contingent liability - as there is no present obligation until a fire has actually occurred?
nick smith
Replies (2)
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Maintenance?
I presume "non-current liability" means provisions for liabilities & charges. I agree that provisions can only refer to present obligations arising from past events. There's no obligation until there's a fire. It doesn't seem to fit the meaning of contingencies either as these refer to uncertainties arising from past events.
In fact, the objective must surely be to avoid fire. It's odd to account for acceptance of the inevitability of a fire. Presumably fire is potentially caused by lack of maintenance. Perhaps here is an alternative, acceptable title for a provision. For example, if significant preventative maintenance work is required every few years, the need for such maintenance arises from continual use of the power lines so a regular charge to P&L and credit to a maintenance provision should be OK.
If in fact fires are an inevitable hazard arising from regular use, then a provision for fire damage also seems OK, even though it sounds odd.
Reserve
I don't see how this can be regarded as a liability, current or noncurrent, it surely is a reserve.