19 June 2016
suppose a company had a pending litigation as at the reporting date 31/3/2016 and it was probable that the settlement would lead to an outflow of resources, so a provision had been made based on reliable estimate for Rs. 50k. The financial statements were approved on 15/5/2015, on which date the estimate for settlement was revised to Rs.55k, then on 30/5/2015 the claim was finally settled for Rs 57k.
so what should be the amount of provision to be recognized as at the reporting date i.e. 31/3/2015.
21 June 2016
The provisions created in the books are based on estimates which are required to be reasonable and reliable. In the above case, the actual expense is Rs.57k. In the reporting date, the provision can be created (again based on estimate) any amount which comes near to Rs.57k. Thus, it would be reasonable to show the estimate at Rs.55k.
CAclubindia
