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Provision and Reserves

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komal gandhi
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10 views10 pages

Provision and Reserves

Uploaded by

komal gandhi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Provision &

Reserves
Provision

 Provision is an amount set aside, by charging it to profit and


Loss , to provide for a known liability the amount of which cannot
be determined with accuracy.
 It is charged in profit and loss Account on the basis of best
estimated
 Provision is made following prudence Concepts of accounting
 For Example- Provision for Depreciation, Provision for Doubtful
Debts, provision For repairs , Provision for Tax.
R and D for Provision for Doubtful
debts
Reserve

 Meaning of Reserve

 Reserve is an appropriation of profits to strengthen financial position of business to meet a liability


as and when arises. Set Aside to meet Known or Unknown Continency

 Types of Reserve

• Revenue Reserve- are set aside out of revenue profits which are available for distribution as
dividend
• General Reserve- Kept aside out of profits not for a specific purpose
• Specific Reserve- Kept aside out of profits for a specific purpose and can be ulitised only for that
purpose. For eg – DRR, CRR, WCR,IFR
• Capital Reserve- Capital reserve is the type of reserve that is created from capital profits. And are
normally not available for distribution
• For eg – Profit prior to incorporation , Profit on sale of FA, Profit on Redemption of debenture , profit
on forfeiture
Secret Reserves

 Is the reserve the amount of which not disclosed in balance


sheet. Called as Hidden Reserve
 By charging excessive depreciation
 By undervaluing stock in trade and goodwill
 Creating excessive provision for bad debts and other
contingencies
 By charging capital expenditure to profit and loss A/c
Which of the following should be
charge against profit and which
should be an appropriation of
profit?
 Provision for Discount on Debtors
 Provision for Doubtful Debts
 Debenture Redemption Reserves
 General Reserve
 Workmen Compensation Reserve
 Provision for tax
 Provision for Repairs
 Investment Fluctuation Reserve
MCQS
 Which of the following is the example of the revenue reserve?
 (a) Profit on redemption of debentures
 (b) Profit on revaluation of fixed
 (c) Investment fluctuation fund
 (d) Profit on re-issue of forfeited shares

 Which of the following is the example of capital reserve?


 (a) Workmen’s compensation fund
 (b) General reserve
 (c) Premium received on the issue of shares or debentures
 (d) None of the above
MCQS
 Provision is created by debiting _______.
 (a) Profit and loss account
 (b) Trading account
 (c) Profit and loss appropriation account
 (d) None of the above

 If the amount of any known liability cannot be determined with


substantial accuracy:
 (a) A reserve should be created
 (b) A Contingent liability should be created
 (c) A definite liability should be created
 (d) A provision should be created

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