IAS 37 asks entities to translate genuine uncertainty into a single number — the best estimate of a provision — using the expected-value method where multiple outcomes are possible, and discounting to present value where the effect of time is material. Working through that arithmetic on a concrete example is the fastest way to see how Part 1’s recognition test and Part 2’s measurement rules actually come together. This is Part 3 of a three-part series on IAS 37 — a free, interactive calculator that applies the expected-value method and discounting to a provision estimate built from numbers you enter yourself.

How the Calculator Works

Each scenario represents one possible way the underlying matter could resolve — for example, settling out of court, losing at trial, or winning outright with no payment. Assign each scenario a probability and an estimated cash outflow; the calculator multiplies each outflow by its probability to get that scenario’s weighted contribution, then sums the three contributions into a single expected value — the undiscounted best estimate described in Part 2. The three probabilities must add up to 100%, since between them the scenarios are meant to cover every realistic outcome.

If settlement is not expected until a future period and the time value of money is material, enter the number of years until expected settlement and an annual discount rate. The calculator discounts the expected value back to present value using the standard discounting formula, exactly as described in Part 2 — the resulting present value is the amount to recognize as the provision.

Provision Calculator

Enter up to three possible outcomes with their probabilities and estimated cash outflows, along with how many years until the obligation is expected to be settled and a discount rate. The calculator applies the expected-value method from Part 2 and, where relevant, discounts the result to present value.