Provision treatment in cash flow

AAadil3y ago

What is the treatment of provision in cashflow statement? 1. Should we add back the full amount just like we do with depreciation or 2. we record only the movement in provision as compared to last year or 3. we will apply both of the above treatments.

PP2-D2Tutor3y ago#1

Hi, When we make a provision we DR SPL CR Provision. So, when we make the initial provision the expense needs to be removed (added back) in the reconciliation of PBT to cash generated from operations. this is like the depreciation adjustment as you state above. When the provision is settled, there will be a cash outflow and this is then shown as reduction in provision in the reconciliation too. It is effectively the movement on the provision. Hope that helps clear it up. Thanks.

AAadil3y ago#2

Ok so option 3 both. Right??

PP2-D2Tutor3y ago#3

Technically not as we will only adjust for the movement on the provision during the year in the SCF. Thanks,

AAadil3y ago#4

Ok thank for clearing this up & you are right because when I am applying option 3 balance sheet doesn't tie up.