Provision examples

yasaswi gomes (My grammar is 💯 good I)   (7290 Points)

14 July 2021  

Hi, out of the below

Warranties

Legal

Environmental

Decommissioning

Bad debt

out of the above,  a debit to asset or P&L is given to create a provision, is there any possibility for me to create a provision out of retained earning earnings or reserves? 

Eg. I have a sinking fund, and recently someone me filed a lawsuit on me for contaminating his fields. I’m gonna loose the case.

Sinking fund reserve/ retained earnings a/c

To Provision liability

and when I have to paid money to the farmer

Provision Liability a/c

To Bank a/c

What difference would it make? Is Provision an allowable expense?

Txs