Provisions
A provision is a liability of uncertain timing or amount, recognised when a present obligation from a past event, probable outflow and reliable estimate exist. Estimate the amount needed to settle the obligation at the reporting date using the available evidence. A warranty provision, for example, arises from sales already made and anticipated claims. Review the estimate at each reporting date and adjust it when circumstances change.
Worked example
A warranty obligation estimated at 500 is recognised as a provision.
Common mistake
A general intention to incur future costs is not a present obligation; contingent liabilities follow different rules.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| ACCA | SBR | Direct | Official assessment-window verification pending |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
