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provision.

Abhy (Account ) (3 Points)

16 April 2018

what is the provision tell me everything about provision...?

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CA Rashmi Gandhi (Chartered Accountant) (86285 Points)
Replied 16 April 2018

A provision can be a liability of uncertain timing or amount. A liability, in turn, is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.[1]

Though it is often thought to be, a provision should not be considered to be a form of savings.

Recognition

A provision shall be recognized if the following criteria are fulfilled:

an entity has a present obligation as a result of a past event;

it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation;

a reliable estimate can be made of the amount of the obligation.[2]

a specific current statement, the entity will accept certain responsibilities andother parties have valid expectations that the entity will discharge its responsibilities.

No provision, however, is recognized for costs that need to be incurred to operate in the future. Also, an obligation always involves another party to whom the obligation is owed (even if this party is unknown)