ABDUL RAZZAQ

Financial Reporting and Analysis

SUBMITTED BY:
ABDUL RAZZAQ
DISCUSSION NO:
02

SESSION:
SUPERVISED BY:
Mehmood Anwar

PROVISION FOR OPERATING LOSSES

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ABDUL RAZZAQ
The answer to this is No. The reason is that they will occur in future (if any) and are not related to current or past
period. Before the recognition of a provision for any account, it must meet the criteria of provision. A provision is
created when it meet the criteria of a liability. As we have defined the provision as a liability of uncertain timing or
amount. Moreover, a liability is created due to past event and it must have either a legal obligation (which arises
from a contract or legislation) or a constructive obligation (Which arises from past practices).
Before the recognition of a provision the following points must be kept in mind.

The business has a present obligation and such obligation is aroused due to past event.

The settle this obligation one has to pay either in the form of outflow or has to adjust with other services in
order to satisfy this.

One must have the clear idea about a reliable estimate. If reliable amount estimate cannot be determined
then no provision can be created. This is because we cannot find out the amount prudently.

Conclusion
No provision for future operating losses is required.

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