Provision is created for: (a) Known Liability (b) Unknown Liability (c) Strengthening Financial Position (d) Distribution of Dividend
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a is correct answer
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(a) Known Liability.
- A provision is a sum placed aside from a company's profits to meet an anticipated liability or a decline in the value of an asset, even if the exact amount is uncertain. A provision is a recognition of an impending liability, not a method of saving.
- Debts that a business knows little or nothing about are known liabilities. The business is aware of who must be paid, how much must be paid, and when the payment is due.
- Contracts, agreements, or legal provisions are frequently where known liabilities originate. The most typical known liabilities include salary obligations, sales tax obligations, accounts payable, and contractual notes obligations.
- All of these debts result from contracts, agreements, or legal obligations that specify how much the business owes, to whom it owes the money, and to whom.
Hence, option a is correct.
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