Provisions and Reserves — Flashcards

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A provision is an amount set aside to meet a future expense or loss whose exact amount is uncertain. It is created for a definitely existing or known liability, but the exact amount cannot be determin…

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A provision means "any amount written off or retained by way of providing for depreciation, renewal or diminution in the value of assets or retained by way of providing for any known liability of whic…

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A provision is created to meet a known liability whose amount is uncertain. It helps in showing correct profit, true financial position, and equal distribution of expense across years. It is also base…

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If total estimated repair cost is ₹5,000 and estimated life is 5 years, then Annual Provision = Total Estimated Repair Cost / Estimated Life = ₹5,000 / 5 years = ₹1,000 per year. This spreads the repa…

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Main examples of provisions are: provision for bad and doubtful debts, provision for discount on debtors, provision for depreciation of fixed tangible assets, provision for taxation, and provision for…

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A provision is created to meet a known liability. The liability is known, but the amount cannot be determined with substantial accuracy. A provision is a charge against profits, so it reduces the prof…

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A provision may be shown either as a deduction from the related asset or on the liabilities side with current liabilities. For example, provision for doubtful debts is deducted from debtors, while pro…

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A reserve is an amount set aside out of profits to meet future uncertainties. It is an appropriation of profit, not a charge against profit. Reserves reduce divisible profits, not net profit. Example:…