Provisions in Accounting and Treatment Thereof.

Presented by, Amit Sekhar

What is Provision?

An amount set aside from profits in the accounts of an enterprise for a known liability, though the specific amount of the liability may not be known, or for the diminution of the value of an asset.

Types of Provisions

Provision For Bad Dept.

Provision For Depreciation.

Provision For Tax.

Provision For Discount on Debtors.

Provision For Repair and Renewals.

Objectives/Need for provisions.

To Meet Anticipated Losses And LiabilitiesProvisions are created for meeting anticipated losses and liabilities such as provision for doubtful debts, provision for discount on debtors and provision for taxation.

To Meet Known Losses And LiabilitiesProvisions are created for meeting known losses and liabilities such as provision for repair and renewals.

To Present Correct Financial StatementsIn order to present correct financial statements and to report true profit and financial position, the business must maintain provision for known liabilities and losses.

Treatment

Particulars Amt. ( )₹ Particulars Amt.( )₹

To salaries 10,000 By Gross profit 95,000

To rent 5,000 By interest 5,000

To prov. For bad debt 2,500

To Depreciation 5,000

To Provision for tax 2,500

To Net profit 75,000

1,00,000 1,00,000

In the Books of AbhishekProfit & Loss AccountDr. Cr.

BALANCE SHEET (As on 31/3/14)

LIBILITIES Amt ( )₹ ASSETS Amt( )₹

Capital 1,25,000

Plant & Machinery 105,000

Add: Net Profit 75,000 2,00,000 Less: Depreciation 5,000 1,00,000

Loan 50,000 Furniture & Fixture 50,000

Creditor 10,000 Debtor(Nishant) 5,000

Bills Payable 5,000 Less: Prov. for doubtful debt 2,500

2,500

Out standing expenses 2,500 Cash 50,000

Bank 65,000

2,67,500 2,67,500