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Provision for free goods to be supplied

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(Querist)
17 December 2012 Please help on this entry,..

A company is entering purchases at the time of purchase of items which are to be supplied free of cost along with the sale of main component and the company is entering sales at the time of sales of main component but the company is suppling free goods in installments now the company is making provision for free goods to be supplied by the company.
whether the co. should make the provision for the goods which are to be supplied free of cost?????
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Arun Biyani

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Arun Biyani (Expert)
17 December 2012 A provision should be recognised only if an enterprise has a present obligation as a result of a past event, t is probable that an outflow will be required to settel the obligation and a very reliable estimation can be made. In case it is ok to provide the amount for free sample as it looks liability is ascertained as soon as you made actual sales.
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