|
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Basis
|
Reserve
|
Provision
|
|
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.
| S.no | ₹ | |
| (i) | Gopinath started business with cash | 25,000 |
| (ii) | Purchased goods from Shyam | 10,000 |
| (iii) | Sold goods to Sohan costing ₹ 1,800 | 1,500 |
| (iv) | Gopinath withdrew from business | 5,000 |
|
|
|
₹
|
|
(a)
|
Shyam became insolvent. A first and final compensation of 75 paise in a rupee was received from his official receiver. He owed a debt of
|
50,000
|
|
(b)
|
Received cash for a bad debt written off last year
|
25,000
|
|
(c)
|
Rent due to landlord
|
40,000
|
|
(d)
|
Depreciation on office furniture
|
5,000
|
|
(e)
|
Salaries due to staff
|
50,000
|
|
(f)
|
Paid income tax
|
1,50,000
|
|
(g)
|
Received commission ₹ 25,000, half of which is in advance.
|
|
|
2019
|
|
₹
|
|
June 1
|
Cash in Hand ₹ 800, Bank overdraft ₹ 5,700
|
|
|
June 7
|
Received a cheque from Bharati, discount allowed ₹ 150
|
3,250
|
|
June 9
|
Deposited the above cheque into Bank
|
|
|
June 15
|
Cheque received from Panna Lal
|
1,200
|
|
June 20
|
Bharati's cheque returned dishonoured
|
|
|
June 28
|
Panna Lal's cheque was endorsed to Kamal
|
|
|
June 30
|
Income tax paid by cheque
|
150
|