Topics in accounting estimates are not clear. Accountants often face a dilemma: whether it is the creation of provisions, or we should rather recognize a contingent liability?

One thing is clear that creating a provision for certain or highly probable future liabilities is only allowed when it can be reliably estimated. This means that in order to justify the reasonableness of a provision, the liability must also meet three conditions:

1. Firstly, it must be probable. As a high degree of probability it is reasonable to assume that the probability of an event is greater than 50%.
2. The second must be for a past event. Contrary to appearances, it is not obvious.
3. The amount of liabilities must be estimated reliably, which means that we can not create in the size of the provision, which no one is able to verify. The basis for a reliable estimate can be for example a court judgment in the case of claims against the company.

The provisions can be created in particular for losses on business transactions, including due to guarantees, warranties, credit operations, results of pending legal proceedings. The legitimacy of provisioning in the unit should consult with a lawyer serving our party - he will know what are the issues in dispute and that turned already been taken in this regard some sentences.

The provisions are established for future liabilities resulting from restructuring, provided that on the basis of separate provisions entity is required to carry out the restructuring of that or if you enter into the binding contract, and the restructuring plans allow for a reliably estimate the value of these future obligations.

Provisions in the income statement shows up properly as other operating costs, financing costs or other losses-is dependent on the circumstances to which the future obligations.

Rise of the liability previously provisioned, reducing the reserve. However, unused reserves, increased other operating costs, financing costs and other losses.

However, if you still have doubts about the issue of provisions for liabilities, we can use help 24iValue, so that we make sure that the reasonableness of the provision, in addition 24iValue may be external confirmation of the correctness of their approach to the management of the unit.

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