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If the company decide to provide how do we treat provision?
Just increase non-current liabily with the amount of provision + any unwinding apportionate to the period and decreases retain earning just with unwinding, or put the whole provision in retain earning+unwinding. and non-current liability. I mean some sort of general provision, ..
If it is provision related to non-current asset- we incread=se the value of NCA and put the provision +unwinding in NCL, just unwinding in retain earning / as depreciation is been already deducted in arriving the cost of NCA. right?
But what we do with some general provisions? for receivable.. etc..
Is there any case when the whole amount of provision can go to retain earning?- Topics: 22
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or when we provide we recognise provision in NCL. BUt when we actually pay- we charge in I/s and respectively- retain earning?
Provisions against receivables and inventory ( in this part of the World ) are netted off against the relevant asset.
If it’s a provision for re-beautifying the country-side, add the present value to the asset and depreciate. As you unroll the discount, the entry is Dr I/S and credit the Provision
Does that answer your question?
- Topics: 22
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if we provide for future decomposing cost for example which would be 100.
First we discount to PV – so they today are 10 for example.
We add these 10 to NCA, and and NCL./provision/
At the end of the year we depreciate the total asset/including provision/ and unwind provision – these 2 entries do go into I/S/ depreciation and unwinding/. But what about the initial 10?
and how does this 10 reflect the cash flow? DO we add back-like depreciation, do we just include in NCA pool, do we deduct or we are not doing anything? or include in NCA pool and deduct at the begining?/like depreciation / i.e opposite to depreciation/
And what does happen with inventory also?Dr TNCA Cr Cash 1,000 ( say )
Dr TNCA Cr Provn with 10
At the end of the year:
Dr I/S depreciation (say 5% straight line) Cr Accum depn 50.5 ( 5% * (1,000 + 10))Dr I/S unrolled discount at (say) 6% Cr Provn (6% * 10) .6
On SoFP we have TNCA at 959.5 (1,010 – 50.5), a Provision of 10.6 (10 + .6)
On SoCompInc we have depreciation of 50.5 and a finance charge of .6
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