Disclosures of allocations , liabilities and potential assets

Disclosures of allocations , liabilities and potential assets  in the financial position , There must be disclosures of the allocations in the financial position . Allocations are included in the liabilities according to their types . The short term liability will be adjusted in a year , but the long term liabilities are adjusted in more than one year . They are listed in the income statement and  in the cash flow statement as explained before .

How to disclose  allocations , liabilities and potential assets 

Allocations balances of all types 

Government claims allocation 

Cases allocation

Whatever the name of the account in the ledger is , 

The gross balance in the general ledger which is sent to the trial balance is , for example 750000 . In the notes , each allocation account should be explained with its transaction , say for example the name of the allocation , the beginning balance of the year and the balance . these are included in a table as follows :

The name of the allocation in the account 

The beginning  balance of this allocation made through the year . If I increased the allocation value because of the new estimation or if it is a new allocation and the company spent part of it during the year . 

The balance : it is the allocated balance at the end of fiscal year , of course the gross balance will be shown in the balance .

 What is the accounting formula ?

 Beginning allocation balance + accumulated during the period - used during the period 

= balance at the end of the financial year .

The concept of liability is not applied to the future operating losses , so they can’t be disclosed as an allocation .

The international standard of allocations  number37  requires the disclosing of compensation only when it is asserted that the amount  will be received but if its receiving is probable then it is disclosed as a potential asset . 

Allocations and composing taxes in the financial statement 

No doubt that taxes must be supported with documented  expenses only . Consequently taxes don’t admit the composed allocation in the income statement because in this case it is not an actual expense until it turns from an allocation into an actual liability on the company and is used . So the composed allocation during the year 

Is considered non-obligatory costs and is returned to the tax base 

Tax base is : the net profit balance in the income statement added to the composing allocations . 

This is the meaning of tax base recovery .

When does the company discloses the allocation as an expense 

If the allocation is used actually , for example if there is a case upon you and you lost it and you use composed allocations . Then the tax authority will disclose the allocations as an actual expense because it is already supported with documents . But if the company has an allocation that is recovered or  its purpose is deleted and the allocation has no use anymore  , here the allocation recovery is a revenue in the income statement  , this revenue is included in the net earnings ( tax base ) and deducted from the tax base on the contrary to the bank allocations and insurance companies that have other status in allocations with exceptions . 

Now we explain the allocations from the tax view in the standard of income tax and law no. 91 
 

Guarantee allocation

It is one of the allocation types which is found in Electrical appliances companies . That is the company sells the product with one year guarantee because of its experience in the ratio of maintenance and repairs  to its sales . Also this is based on its estimation and the nature of its products and customers , so it is an ordinary allocation of 2% for example , of the sales .

The entry is 

                A  /  APPLIANCES MAINTENANCE EXPENSE 

TO          A  /     APPLIANCES MAINTENANCE ALLOCATION

When the allocation is used in appliances maintenaAPPLIANCES MAINTENANCEnce 

The entry is 

               A /  APPLIANCES MAINTENANCE 

TO          A / CASH

With the actual cost of maintenance and allocation balance that will remain for the following year . We can increase or decrease the remainder  allocation according to the company estimation of the maintenance and repairs costs as a result of its experience as we explained above .

 

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