Final answer:
A provision refers to an estimated amount set aside to cover potential future expenses or losses. It is not discretionary but made in accordance with accounting principles and regulations.
Step-by-step explanation:
A provision refers to an estimated amount set aside to cover potential future expenses or losses. It is typically created by a company in anticipation of a known obligation or potential risk. The correct answer to the question, 'Which of the following statements is NOT true about Provisions?' is (d) discretionary as a matter of financial prudence.
Provisions are true about Provisions:
- It is an appropriation of profit - A provision reduces the company's profits and is allocated from the retained earnings.
- It is a charge against profits - Provisions are recorded as expenses in the income statement, reducing the company's overall profit.
- It is shown on the liability side of the balance sheet - Provisions represent potential liabilities and are classified as current liabilities on the balance sheet.
However, the statement (d) discretionary as a matter of financial prudence is NOT true about Provisions. Provisions are not discretionary; they are made in accordance with accounting principles and regulations, and are based on objective criteria and specific events or circumstances.