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ma’am I understand this is supper silly! but to set my understanding straight I still wanted to know this:
in the part a) iii) what is the difference between “charge for the year” and “provisions utilised during the year”?
and one more doubt, shouldn’t the opening warranty provision balance be “Provisions utilised during the year (1.9)+ Unutilised provisions reversed(3.1)= $5million” instead of 11.5million?
Charge for the year refers to the expense in SoPL (and I think is better called “expense” rather than charge). Utilisation of a provision is just that!
So for example, a company provides $100k as at 31 March 20X1 for employees who have been informed that they will be made redundant w.e.f. 30 June 20X2. The costs of redundancy “belong” to the y/e 31 March 20X1 – Dr Expense (SoPL) and Cr Provision (SoFP)
When staff are paid redundancy: Dr Provision and Cr Cash – i.e. the provision is utilised. If provision is only an estimate there will be a balance on the provision a/c at 31 March 20X2. Any underprovision will be expense in year to 31 March 20X2 – and any overprovision a reduction.
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