Assessing Company performance--provisions. -- ERG trade data forum

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Date Posted: 23:03:02 03/08/03 Sat
Author: Subject: For those who would like to understand ERG's provision Proton52.4 m.
Subject: Assessing Company performance--provisions.

Thank you for using the forum, Wonder Woman
Your entry has now been added to the forum as follows...

Name: Wonder Woman
Location: Sydney, NSW Australia
Date: Sunday, March 9, 2003 at 6:01:45 PM
Subject: For those who would like to understand ERG's provision Proton52.4 m.
Comments:

It affects you in the financial period it is done, which is the first half of the 02 to 03 year which is the 30/6/02 to the 30/6/03 final year report will be going on past dates around September. In this case, ERG have offset that by also paying out some loans and netting 60 million (approx) dollars so the two balance each other out in that regard and don't effect things next half.
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"For the six months ended 31st December 2002 ERG recorded a loss of 124.9 million, which included a
charge for the provision of a deferred liabilily on the Proton acquisition of $8.9 million and a write down of-goodwill in relation to Proton of $52.4 million."
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Assessing Company performance--provisions.
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Provisions are charges an entity makes against profits to allow for expenses which have been incurred but for which the amount and the payment date can only be estimated. In other words, they are estimates of specific commitments. For example, in topic two we saw that entities are required ke provision in their accounts for doubtful debts. Provisions are made for such items as depreciation, long service leave and warranty.
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All provisions relating to assets are deducted (doubtful debts, inventory obsolesence, depreciation and amortisation) with all other provisions being included under current or non current liabilities. Sometimes provisions may be used to reduce profits. In a good year, an entity may over provide, thus creating a cushion which can then be used in a bad year to absorb any fall in profits.Provisions which allow a greater amount of flexibiliy in the estimation procedure, tend to be set on a fairly pessimistic note. This is part of the doctrine of conservatism which simply means accountants do not like to take the risk of reporting profit before they are reasonably certain the entity will earn it. There can be a tendency to record all possible costs as early as possible and revenues as late as possible. Entities doing very well tend to be conservative in their accounting, whereas entities having difficulties are tempted to abandon the doctrine of conservatism. These are the entities which are more likely to fail.

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