A provision recognized for a specific obligation should be used for:
Correct answer: B. The obligation for which it was recognized
- A. Any future business expense
- B. The obligation for which it was recognized
- C. Dividend payments to shareholders
- D. General expansion activities
Explanation
A provision is linked to a particular present obligation and is not a general pool of funds. Using it for unrelated expenses would misrepresent both the liability and the expense.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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34 free Accruals, Prepayments and Provisions MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
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More Accruals, Prepayments and Provisions questions
If a provision is no longer required because the related obligation has been settled or has ceased to exist, the provision should normally be:
Under IAS 37, the present value of a provision is used when the effect of:
A restructuring provision is normally recognized only when the entity has a detailed formal plan and has:
If an obligation is possible but the related outflow of economic benefits is remote, IAS 37 generally requires the entity to:
An accrued expense has an opening balance of Rs 8,000. During the year, cash paid for the expense is Rs 70,000, and the closing accrual is Rs 12,000. What expense is charged for the year?
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