If a provision is no longer required because the related obligation has been settled or has ceased to exist, the provision should normally be:
Correct answer: B. Reversed through profit or loss
- A. Transferred to share capital
- B. Reversed through profit or loss
- C. Added to inventory cost
- D. Kept permanently as a reserve
Explanation
A provision must represent a current obligation at the reporting date. When that obligation no longer exists, the unused provision is reversed, normally through profit or loss.
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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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