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Basis
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Reserve
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Provision
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1.
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Nature
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It is an appropriation of profit.
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It is a charge against Profit.
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2.
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Purpose
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It is created to strengthen the financial position and to meet unforeseen liability or losses.
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It is made to meet known liability or contingency, when amount is not determind.
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3.
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Effect on profit
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It is debited to the profit and Loss Appropriation Account. Hence, Profit is not affected.
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It is debited to the profit and Loss Account. Hence, profit is reduced.
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4.
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Investment
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It may be invested outside the business.
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It is not invested.
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5.
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Distribution
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Unutilised part can be distributed as dividend. It reduces divisible profit.
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It cannot be used for distribution as profit/ dividend. It reduces net profits.
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6.
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Compulsion/ Prudence
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It is created out of profits as a matter of prudence and due to legal requirements.
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It is made because of accounting principles (prudence).
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7.
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Presentation
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A reserve is shown on the liabilities side of Balance Sheet under the head 'Reserves and Surplus'.
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It is shown either as a liability under the head 'Current Liabilities' or as deduction from the asset.
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Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.
| (₹) | ||
| i. | Machinery purchased for | 5,00,000 |
| ii. | Machinery sold | 1,20,000 |
| iii. | Machinery discarded | 50,000 |
| iv. | New Machinery purchased | 2,00,000 |
| v. | Machinery destroyed | 40,000 |
| (₹) | ||
| a. | Sold goods to Shankar on Credit | 50,000 |
| b. | Sold goods to Ghanshyam for Cash | 30,000 |
| c. | Purchased goods from Mohan on Credit | 25,000 |
| d. | Received from Shankar | 29,000 |
| e. | Shankar returned goods | 1,000 |
| f. | Sold goods to Shankar for Cash | 5,000 |
| g. | Returned goods to Mohan | 2,000 |
| h. | Paid Rent | 4,000 |