Question

Where do we show provision for D.D, Provision for tax? In long term provision or short term provision and why?

Answer 1

Provision for Doubtful Debts and Provision for Tax will be shown under the head of Short-term Provisions. Short-term provisions are created for those liabilities which are to be paid within 12 months.
Reasons:

1. Provision for tax: It is created to have sufficient amount of money for paying taxes at the end of the accounting period.
2. Provision for Doubtful debts: It is created on the amount of debtors (current assets) so as to minimise the effect of actual loss caused by the bad-debts. The actual loss will be known in the next accounting year. Thus, provision is created for 12 months.