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An accounting term originally defined in the Companies Act 1948 as ‘any amount written off or retained by way of providing for depreciation, renewals, or diminution in value of assets, or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy’. If the amount is more than the directors consider strictly necessary, the difference should be treated as a reserve and not as a provision. The 1981 Companies Act provided that in the accounts of limited company’s notes must be supplied showing the amount of every material provision for liabilities or charges and distinguishing between the figure at the commencement of the period to which those accounts relate and the closing figure. Details of transfers to and from those provisions must also be given.
Reference: The Penguin Business Dictionary , 3rd edt.
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