Question

Which of the following statements are correct about a “Provision”?

(i) Provisions are a charge against the profits of an enterprise
(ii) Provisions are created out of divisible proifts
(iii) Creation of provisions are not necessary for a business
(iv) Provisions are created to meet a known liability

• A. (i), (ii) and (iii)
• B. (ii) and (iv) only
• C. (i), (iii) and (iv)
• D. (i) and (iv) only

Answer 1

Answer:

D. (i) and (iv) only

Provision: Is a charge against profit (reduces net profit). ✅ Created to meet a known liability or anticipated loss (e.g., doubtful debts, taxation). ✅ Not created out of divisible profits; provisions are mandatory, not optional. ❌ Creation is necessary for presenting a true and fair view of accounts. ❌