Provisions and Reserves Account - Provisions and Reserves

• A
  Provision is a charge against profit.
• B
  Provision is created for known liability.
• ✓
  Provision is created for strengthening the financial position of the business.
• D
  Creation of provision satisfies the principle of conservatism.

Answer: C.

• A
  A revenue reserve is created out of capital profits whereas a capital reserve is created out of business profits.
• B
  A revenue reserve can be used for distribution of dividend with certain preconditions whereas a capital reserve can be used for distribution of dividend without any preconditions.
• ✓
  A revenue reserve is created for strengthening the financial position whereas capital reserve is created for meeting capital losses or to be used for purposes specified by the Companies Act.
• D
  There is no distinction between revenue reserve and capital reserve.

Answer: C.

• ✓
  A provision is created out of a legal necessity whereas a reserve is created as a matter of prudence.
• B
  A provision is invested whereas reserve is not invested.
• C
  A provision is an appropriation of profit whereas a reserve is a charge against profit.
• D
  A provision can be used for distribution of dividend whereas a reserve cannot be allowed to be used for distribution of dividend.

Answer: A.

• ✓
  Provision should be created.
• B
  Definite liability should be created.
• C
  Reserve should be created.
• D
  Should be shown as a contingent liability.

Answer: A.

• A
  $(ii)$ and $(iii)$
• B
  $(ii)$ and $(iv)$ only
• C
  $(i), (iii)$ and $(iv)$
• ✓
  $(i)$ and $(iv)$ only

Answer: D.