Class XI Accountancy: Provisions and Reserves

What is the purpose of making provisions and reserves in a business?

Which of the following is considered as a provision in a business?

How are provisions shown in the financial statement?

What is the purpose of creating a provision for depreciation?

Where are provisions typically shown on the balance sheet?

Which of the following is NOT an example of a provision in a business?

What is the purpose of creating reserves in a business?

Where are reserves typically shown in the Balance Sheet?

What is the main difference between a general reserve and a specific reserve?

Which type of reserve can be utilized for any purpose?

What is the primary source of revenue for creating revenue reserves?

Which type of reserve is not available for distribution as dividend?

What is the impact of a provision on taxable profits?

Which type of reserve has no specified purpose?

Provisions and Reserves in Business

The purpose of making provisions and reserves in a business is to set aside a portion of profits for future expenses or potential losses.

Provisions

A provision is a liability that is probable and can be estimated, such as warranty claims, lawsuits, or restructuring costs.
Provisions are shown in the financial statement as a liability, usually under the "Provisions" or "Accrued Liabilities" section.
The purpose of creating a provision for depreciation is to account for the decrease in value of an asset over time.
Provisions are typically shown on the balance sheet as a non-current liability.

Reserves

The purpose of creating reserves in a business is to set aside a portion of profits for future use, such as for expansion, modernization, or contingencies.
Reserves are typically shown on the balance sheet as a part of equity, usually under the "Reserves and Surplus" section.
A general reserve can be utilized for any purpose, while a specific reserve has a specified purpose, such as a dividend equalization reserve.
Revenue reserves are typically created from revenue profits and can be utilized for any purpose.
Capital reserves, on the other hand, are created from capital profits and cannot be utilized for distribution as dividends.
A general reserve has no specified purpose and can be utilized for any purpose.

Impact on Taxable Profits

A provision reduces taxable profits, as it is considered an expense.

Learn about provisions and reserves in the context of business risks and uncertainties. Understand the importance of making provisions and reserves to protect the business from adverse events.