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Doubt regarding provision for taxation and provision for dividend.

Shree Kirloskar (Student CA IPCC) (37 Points)

04 November 2015

Why is "Provision for taxation and Provision for dividend" treated as current liability?

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Riddhi Pandya (CA Final) (55 Points)
Replied 04 November 2015

Dear Shree, Current liability refers to any obligation of the company due as on balance sheet date and to settle which a current asset say cash etc would be required. Provision for tax means the amounts retained out of current year profit and kept aside for purpose of paying tax, hence it's like short term finance for payment of tax purposes. Also Provision for dividend amount is retained out of profits which is to be distributed to equity owners as dividends. In both cases,there exist obligation on company to settle the amounts. Hence, it is a correct practice to classify under current liability.