I have a specific scenario for making provision that I'm still not clear about, hope you could help to clarify. Specifically, this has to do with the airlines industry, where leased aircraft have major future maintenance costs associated with them, for the life of the asset. These costs often are detailed in the lease agreements. The maintenance costs, therefore should be provisioned for.
But since the provision will be quite large, and are spread over a long period of time, I imagine we should not expense the whole amount upfront in year when the assets are leased. How should I treat this provision in the first year, and how should I "expense" them when the cost are due.
Should I book a corresponding asset account (as per IAS 37.8 , a pre-payment?) against the provision entry in the first year? Then as the aircraft as used over time (usually by the number of hour flown), the expense is amortized (Cr. to Asset) against a reversal of the original provision (Dr. Provision)? If that is the case, should I then also book an Expense entry against Cash to recognize the actual maintenance expenses?
Thanks for your help!