Account 1 Marks Question

Revenue Reserve.

Profit on sale of a fixed asset is a capital profit and, therefore it will be transferred to Capital Reserve.

Reserve is an appropriation of profit whereas provision is charge against profit.

Workmen Compensation Fund:
It is created to meet compensation payable to workers in case of inexpected or unknown event of an accident.

1. Dividend Equalisation Reserve and
2. Workmen Compensation Fund.

Dividend equalisation reserve: Such a reserve is created to maintain steady rate of dividend. In the years in which the profits are sufficient, a part of the profit is transferred to such reserve and it is utilised to keep the dividend up in the year in which the profits are insufficient.

Reserve.

Capital Reserves are set aside out of capital profits and are normally not available for distribution as dividend. In other words, reserve created out of capital profits and which is not readily available for distribution as dividend among the shareholders is called Capital Reserve.

Dividend Equalisation Reserve is not debited to Profit and Loss Account. Its creation does not reduce the net profits. It is appropriation of profit and is debited to Profit and Loss Appropriation Account.

It is created not by debiting to P & L A/c but through P & L Appropriation A/C.
As such, it is appropriation of profit because it is created after the calculation of net profit.

1. Provision = Provision for Deprecition of Assets.
2. Reserve = General Reserve.