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AS 5 Change in Accounting Estimate
Accountancy
Sir, in Illustration 3 the question said that provision was Rs 700000 in P.Y. against which actual expenses incurred were Rs 900000. So, the actual just exceeded estimate. How is it a case of Change in Accounting estimate, because we didn't revise amount of provision? [Video Time Stamp: 00:54]
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Best Answer
A provision is an estimate of a liability or expense based on the best available information at the time. In the previous year, Rs 700,000 was the estimated amount for the provision.When the actual expense turns out to be Rs 900,000, it reflects new information or experience that indicates the original estimate was not perfectly accurate. The actual amount being higher than our estimate is nothing but change in our estimates.
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