Provision
A liability of uncertain timing or amount that is recognised in the accounts because an outflow is probable and estimable.
Formula
Test: a present obligation exists, an outflow is probable, and a reliable estimate can be made; recognise the best estimate
Unit
₹ crore
In depth
A provision reduces profit in the year it is created and is drawn down when the obligation is settled, so it moves earnings between periods rather than changing their total. That property makes it a favoured tool for smoothing: over-provide in a strong year, release the excess in a weak one, and reported profits look steadier than the business is. Comparing provisions created with provisions utilised, disclosed in the notes, exposes this pattern. Provisions differ from contingent liabilities only by probability and measurability, and companies reclassify between the two more often than the underlying facts change.
Worked example
A company creates a ₹60 crore warranty provision in a strong year and utilises only ₹15 crore. The unused ₹45 crore is available for release in a weak year, which would raise that year's profit without any operational improvement.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Provision” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.