Accountancy Forum

AOA.
My first question is relate to ias-37.
that (PROVISION FOR BAD-DEBTS made during the year)
meet the recognition criteria of recognition of provision
under ias-37. if yes than how.
1)Is provision for b.debts made during the year have any
obligation(legal or constructive) at balance sheet date?
2)Any outflow of economic benefits required to settle the
obligation?

My second question is that
"PROVISION CAN BE MADE FOR ANY TYPE OF LOSS INCURED DURING THE YEAR"?

Dear Zia;


Provision for bad debts is recognised on the basis that the debts may not be recovered by the Company, which shows an expectation of the loss which belongs to a past event and a reliable estimate can also be made about the loss.

About your second question, Any loss incured during the year must be provided for in the period to which it relates.

Mohsin's explanation is good and can be expanded further to agree with all recognition criteria given in IAS 37 specially as per definitions and guidelines provided in Framework to IFRSs.

However, let me tell you that provision for bad debts is in fact a provision for impairment. For assessing it further, you have to explore the material in IAS 36 (provisions related to impairment of financial assets). Again, in one way or other it can be proved logical under both IASs.

Let me assure you provision for doubtful debts is not a provision in respect of some future expenditure. It is related to some past event and the loss is PROBABLE (not certain) at balance sheet date.


Regards,

thanks for guidence