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Querist : Anonymous

Querist : Anonymous (Querist)

18 February 2011 While calculating the book profit we add back the following:
"the amount set aside to provisions made for meeting liabilities other then ascertained liability"
what are the item which are cover under this clause......

Priya Aralikatti

Priya Aralikatti (Expert)

18 February 2011 Generally, provisions consist of
1. Items which are backed by ascertained cash outflow
2. Items based on probable future cash outflow

For example gratuity provision based on acturial valuation is a scientifically calculated and ascertained liability. Also monthly rent payment which will be due in the next month is an ascertained liability.
Whereas, provision for warranty expenses calculated as a percentage of sales is an unascertained liability. Here the exact liability is not known because warranty expense depends on the number of claims one would receive in future.

Querist : Anonymous

Querist : Anonymous (Querist)

18 February 2011 Thanku M/s Priya

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