Provisions

Provision usually means any amount written off or retained by way of providing depreciation, renewals or diminution in the value of asset or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.

Why provisions are needed

When we are drawing up our financial statements, we want to achieve the following objectives:

1. To charge as an expense in the profit and loss account for that year an amount representing debts that will never be paid;
2. To show in the balance sheet a debtors figure as close as possible to the true value of debtors at the balance sheet date.