Multiple choice

Secrete reserves may result by

  1. creating general reserve

  2. providing excessive depreciation

  3. overvaluation of stock

  4. undervaluation of liabilities
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Secret reserves are created by showing a financial position that is weaker than the actual state. Providing excessive depreciation reduces the book value of assets and net profit, effectively hiding surplus funds from the balance sheet.

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