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Answer» Importance of provision is as under: - True and fair profit or loss of the business can be ascertained.
- On the expiry of the useful life of an asset, the managed funds (Provision) can be used to purchase new assets.
- Known liability of future can be spread evenly over certain years by making provisions.
- Assumption of going concern and principle of prudence can be followed by making provision.
- Business capital will be maintained by making provisions.
- To show the assets and liabilities of the business at correct and true value.
- To provide for future losses and expenses if amount of such losses and expenses is not determined in advance.
- Provision is made to prevent impact of transactions made during the year on the financial performance in future.
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