Example of Provision

Example of Provision

Provision is liability of which amount and timing is not certain. However a reliable estimate of amount can be made.

Example of Provision # 1

ABC & Co was sued by a customer for low quality ingredients. Legal expert is of the opinion that customer will win the case against ABC & Co and court usually fine the companies for $ 5000. The accountant is of view that case still to be decided therefore there is no liability.

Solution

According to legal expert opinion there is liability of $ 5000 (reliable estimate) and therefore a provision is to be recognized.

Date	Particulars	Dr.	Cr.
	Fine for Low Quality	$ 5000
	Provision		$ 5000