Provisions

In this lesson

1. 0:00 Provisions and contingencies overview
2. 0:17 What is a provision under IAS 37
3. 1:19 Three key criteria for recording provisions
4. 2:13 Legal and constructive obligations explained
5. 4:16 Probable outflow and reliable estimates
6. 5:21 Expected values method worked example
7. 7:04 Journal entries and provision accounting
8. 7:50 Adjusting and releasing provisions
9. 9:12 Provision settlement case study

About this lesson

A provision is a liability with uncertain timing or amount, and it's distinct from regular payables or accruals because it involves significantly higher uncertainty. You'll discover the three essential criteria that must be met before recording a provision (present obligation, probable outflow, and reliable estimate), explore the difference between legal and constructive obligations, and master the accounting treatment including how to adjust and release provisions as circumstances change. This lesson walks you through real-world examples like warranty obligations and legal claims, then shows you how to calculate provisions using expected values when multiple outcomes are possible. You'll see the double-entry mechanics: debiting the expense in the statement of profit or loss and crediting the provision liability on the statement of financial position. The lesson also covers the crucial year-end review process, where provisions must be adjusted upwards or downwards based on the best current estimate, and explains when and how to release a provision entirely once the uncertain event is resolved or no longer probable. By mastering provisions, you'll be able to correctly classify uncertain liabilities, apply the IFRS 37 framework with confidence, and handle the adjustments and reversals that appear frequently in exam questions and real financial statements.

Duration: 11m