ECONOMICS

Detailed explanation-1: -A provision represents funds set aside for future expenses or other losses such as reductions in asset value. Types of provisions include bad debt, loan losses, tax payments, pensions, warranties, obsolete inventory, restructuring costs and asset impairment.

Detailed explanation-2: -Provisions in accounting refer to the amount that is generally put aside from the profit in order to meet a probable future expense or a reduction in the asset value although the exact amount is unknown.

Detailed explanation-3: -The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date, that is, the amount that an entity would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party.

Detailed explanation-4: -Bad debts, guarantees, depreciation, pensions, inventory obsolescence, restructuring liabilities and sales allowances are all examples of accounting provisions.