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Explanation: Short-term provisions are liabilities earmarked by a company to cover anticipated expenses or obligations expected within the next twelve months. These provisions account for contingencies, legal claims, warranty obligations, restructuring costs, or other short-term liabilities requiring estimation and accrual of expenses. Accrual of expenses involves recognizing and recording expenses in financial statements as they are incurred, ensuring expenses match the revenues they generate, and providing an accurate representation of a company’s financial performance. Short-term provisions are listed as current liabilities on the balance sheet as they are to be settled in the near future.
Example: Maruti Suzuki reported Short Term Provisions of 2,120.80 crore rupees in FY23, indicating the amount of funds set aside by the company to cover short-term obligations and contingencies that are expected to be settled within the next twelve months. These provisions represent liabilities that Maruti Suzuki anticipates will require payment or settlement in the near future, such as warranty claims, restructuring costs, or legal liabilities. Analyzing short term provisions helps assess the company’s financial health, risk management practices, and its ability to meet short-term obligations as they come due.
You can view the Short-Term Provisions for any company on Radar under Current Liabilities in the Balance Sheet section.