Provision examples

Indian Accounting Standards 343 views 5 replies

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

 

 

 

Replies (5)

A provision should be recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations or

(c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision should be recognised.

Bad debt provision is tax allowable, similarly is legal provisioning tax allowable?

yes. But it must be pertaining to business legal expenses

Alright, that gives an obligation to recognise it in Profit or Loss 

Provision for bad debts is not an allowable deduction under income tax act.


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