Explanation
The maintenance expense to fixed assets ratio allows analysts to understand the age or condition of the company's equipment. An increase to a company's repairs and maintenance expense to fixed assets ratio over time can signal aging equipment or assets that are being pushed to their operating limits.
Definition
A provision can be a liability of uncertain timing or amount. A liability, in turn, is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Though it is often thought to be, a provision should not be considered to be a form of savings. Examples are; income tax liability, product warranty, environment restoration,etc.
Recognition
A provision shall be recognized if the following criteria are fulfilled:
1. an entity has a present obligation as a result of a past event;
2. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation;
3. a reliable estimate can be made of the amount of the obligation.
4. a specific current statement, the entity will accept certain responsibilities and other parties have valid expectations that the entity will discharge its responsibilities.
No provision, however, is recognized for costs that need to be incurred to operate in the future. Also, an obligation always involves another party to whom the obligation is owed (even if this party is unknown).
Depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life or life expectancy. It is a mandatory deduction in the profit and loss statements of an entity. It is a charge against profit, and not an appropriation of profit, as it is charged regardless of whether there is profit or loss.
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