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Definition of Provision

Provision Image 1

Provision

Estimates of possible future liabilities that may arise.



Related Terms:

Antidilution Provisions

A clause in a shareholders agreement preventing a company from issuing additional shares, without allowing the current shareholders the opportunity to participate in the offering to avoid dilution of their percentage ownership.


Antifraud Provisions

Specific sections and rules of the 1933 Act and 1934 Act that are
designed to reduce fraud and deceit in financial filings made with the SEC. The antifraud provisions
are Section 17(a) of the 1933 Act and Section 10(b) and Rule 10b-5 of the 1934 Act.


Call provision

An embedded option granting a bond issuer the right to buy back all or part of the issue prior
to maturity.


Fair price provision

See:appraisal rights.


Income Tax Provision

The expense deduction from pretax book income reported on the
income statement. It consists of both current income tax expense and deferred income tax
expense. The terms income tax expense and income tax provision are used interchangeably.



Optimal redemption provision

provision of a bond indenture that governs the issuer's ability to call the
bonds for redemption prior to their scheduled maturity date.


Provision for Doubtful Accounts

An operating expense recorded when the allowance for
doubtful accounts is increased to accommodate an increase in uncollectible accounts receivable.


Provision Image 2

Provisional call feature

A feature in a convertible issue that allows the issuer to call the issue during the noncall
period if the price of the stock reaches a certain level.


Put provision

Gives the holder of a floating-rate bond the right to redeem his note at par on the coupon
payment date.


Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.


Beneficiary

This is the person who benefits from the terms of a trust, a will, an RRSP, a RRIF, a LIF, an annuity or a life insurance policy. In relation to RRSP's, RRIF's, LIF's, Annuities and of course life insurance, if the beneficiary is a spouse, parent, offspring or grand-child, they are considered to be a preferred beneficiary. If the insured has named a preferred beneficiary, the death benefit is invariably protected from creditors. There have been some court challenges of this right of protection but so far they have been unsuccessful. See "Creditor Protection" below. A beneficiary under the age of 18 must be represented by an individual guardian over the age of 18 or a public official who represents minors generally. A policy owner may, in the designation of a beneficiary, appoint someone to act as trustee for a minor. Death benefits are not subject to income taxes. If you make your beneficiary your estate, the death benefit will be included in your assets for probate. Probate filing fees are currently $14 per thousand of estate value in British Columbia and $15 per thousand of estate value in Ontario.
Another way to avoid probate fees or creditor claims against life insurance proceeds is for the insured person to designate and register with his/her insurance company's head office an irrevocable beneficiary. By making such a designation, the insured gives up the right to make any changes to his/her policy without the consent of the irrevocable beneficiary. Because of the seriousness of the implications, an irrevocable designation should only be made for good reason and where the insured fully understands the consequences.
NoteA successful challenge of the rules relating to beneficiaries was concluded in an Ontario court in 1996. The Insurance Act says its provisions relating to beneficiaries are made "notwithstanding the Succession Law Reform Act." There are two relevent provisions of the Succession Law Reform Act. One section of the act gives a judge the power to make any order concerning an estate if the deceased person has failed to provide for a dependant. Another section says money from a life insurance policy can be considered part of the estate if an order is made to support a dependant. In the case in question, the deceased had attempted to deceive his lawful dependents by making his common-law-spouse the beneficiary of an insurance policy which by court order was supposed to name his ex-spouse and children as beneficiaries.


Bond covenant

A contractual provision in a bond indenture. A positive covenant requires certain actions, and
a negative covenant limits certain actions.


Call price

The price for which a bond can be repaid before maturity under a call provision.


Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.


Cash delivery

The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.


Covenants

provisions in a bond indenture or preferred stock agreement that require the bond or preferred
stock issuer to take certain specified actions (affirmative covenants) or to refrain from taking certain specified
actions (negative covenants).


Cross default

A provision under which default on one debt obligation triggers default on another debt
obligation.


Current Income Tax Expense

That portion of the total income tax provision that is based on
taxable income.



Default

Failure to make timely payment of interest or principal on a debt security or to otherwise comply
with the provisions of a bond indenture.


Deferred call

A provision that prohibits the company from calling the bond before a certain date. During this
period the bond is said to be call protected.


Deferred Income Tax Expense

That portion of the total income tax provision that is the result
of current-period originations and reversals of temporary differences.


Deferred Tax Asset

Future tax benefit that results from (1) the origination of a temporary difference
that causes pretax book income to be less than taxable income or (2) a loss, credit, or other
carryforward. Future tax benefits are realized on the reversal of deductible temporary differences
or the offsetting of a loss carryforward against taxable income or a tax-credit carryforward against
the current tax provision.


Doubling option

A sinking fund provision that may allow repurchase of twice the required number of bonds
at the sinking fund call price.


Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.


Effective Tax Rate

The total tax provision divided by pretax book income from continuing
operations.


Income Tax Expense

See income tax provision.


Re-entry

This is a provision in some term insurance policies that allow the insured the right to renew the policy at a more favourable rate by providing updated evidence of insurability.


Registered Retirement Savings Plan (Canada)

Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules which apply to RRSP's are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on moneys received.
If you are currently 69 years of age, you may still contribute to your own RRSP until December 31st of this year and realize a tax deduction on this year's income. You must also, however, make provisions before December 31st of the year for converting your RRSP into either a RRIF or an annuity, otherwise, the full balance of your RRSP becomes taxable on January 1 of the following year. If you are older than age 69, still have earned income, and have a younger spouse, you may continue to contribute to a spousal RRSP until that spouse reaches 69 years of age. Contributions would be based on your own contribution level and are deducted from your taxable income.



Restrictive covenants

provisions that place constraints on the operations of borrowers, such as restrictions on
working capital, fixed assets, future borrowing, and payment of dividend.


Revenue

An inflow of cash, accounts receivable, or barter from a customer in exchange
for the provision of a service or product to that customer by a company.


Right of Return

A sales agreement provision that permits a buyer to return products purchased
for an agreed-upon period of time.


Service Revenue

Revenue recognized from the provision of services as opposed to the sale of
products.


Strategic management accounting

The provision and analysis of management accounting data about a business and its competitors, which is of use in the development and monitoring of strategy (Simmonds).


Subordination clause

A provision in a bond indenture that restricts the issuer's future borrowing by
subordinating the new lender's claims on the firm to those of the existing bond holders.


Supermajority

provision in a company's charter requiring a majority of, say, 80% of shareholders to approve
certain changes, such as a merger.



 

 

 

 

 

 

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