Question

5 importance of provision​

Answer 1

Answer:

provision is usually an amount that is set aside from a company’s profits, usually to cover an expected liability or a decrease in the value of an asset, even though the specific amount of the same might be unknown. A provision should not be understood as a form of savings, instead, it is a recognition of an upcoming liability, in advance.

Reserves, another common accounting term, and provisions are strictly not interchangeable terms. Whereas a provision is intended to cover upcoming liabilities, a reserve is a part a business’s profit, set aside to improve the company’s financial position through growth or expansion.

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Straight Line Method and Written Down: A Comparative Analysis

Methods of Recording Depreciation

Disposal of Asset and any Addition or Extension to the Existing Asset

Need for Depreciation and Factors Affecting Amount of Depreciation

Reserves

Declining Charge Method

Other Methods

Answer 2

Provisions are important because they account for certain company expenses, and payments for them, in the same year. This makes the company's financial statements more accurate. Provisions are not a form of savings. Because the expense is 'probable', the amount set aside is expected to be spent.

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