Corp Tax - Chapter 24

Question 1

What is a provision

Answer 1

estimate of expenditure

Question 2

What FRS is a provision

Answer 2

FRS102

Question 3

HMRC will accept provisions as deductible if:

Answer 3

i. they relate to allowable revenue expenditure;
ii. they follow generally accepted accounting practice (GAAP), which means the application of FRS 102 or IAS 37 (see the Herbert Smith case);
iii. they do not conflict with any specific tax rule given by statutory provisions or case law; and
iv. they can be estimated with sufficient accuracy.

Question 4

Under GAAP, a provision is required if it meets all three of the following conditions:

Answer 4

• present obligation resulting from a past event.
• transfer of economic benefits will be required to settle this
  obligation
• reliable estimate

Question 5

Legal Obligation

Answer 5

Lease agreement
Service or warranties

Where an entity can prove that it has an obligation under a particular statutory provision, which requires it to spend money and which it can reliably estimate, then a provision will be required under GAAP.

Question 6

Constructive obligations

Answer 6

If an entity has established a past practice or published policies indicating it will accept certain responsibilities, and there is a valid expectation that those responsibilities will be discharged, then a provision will be required under GAAP.

E.g. warranty above statutory requirements