The Provision provides a backup for the unforeseen loss. It should be a reliable estimate. Though we see it as a plus that a entity is agile towards its contingencies, but it can as bad as its good too!! If profits are reached more than the targeted amount it is manifested lesser so that people won’t expect the same in the following FY. This is easily manipulated as it’s known that a liability is awaiting but the amount is unknown. It’s a liability for the company. It has to be adjusted with the respective accounts. The excess provision is written back to the Profit and loss Account and retained by the business. Read more………..

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