Tag: provisions and reserves

Quizzes (6) Questions (81)

Questions Related to provisions and reserves

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

__________is reserve created to meet any loss due to natural calamities.

  1. Revenue reserve

  2. Capital reserve

  3. Catastrophic reserve

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Catastrophic reserve means a reserve which is meant for meeting losses arising from an entirely unexpected set of events and not for any specific purpose. This reserve is in the nature of an amount set aside for the potential future liability against the insurance policies.
Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

_________ are known as an amount kept aside and retained in the business for future needs.

  1. Reserves

  2. Provisions

  3. Asset

  4. Liability
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Reserves are appropriations against profits, they are created from profits for future applications. Net profit at the end of the year is transferred in specific proportions to Reserves keeping a side this parts of profits.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

___________ is created out of revenue profits from business operations.

  1. Revenue Reserves

  2. General Reserve

  3. Reserve Fund

  4. Dividend equalisation Reserve
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Revenue profit means Profit earned in normal course of business and reserve created out of this undistributed profits are called revenue reserves.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

____________ is created out of capital profits arising from non operating activities.

  1. Capital Reserve

  2. Securities Premium

  3. Capital Redemption Reserve

  4. None
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The capital reserve is the reserve which is created out of the profits of the company generated from its non-operating activities during a period of time and is retained for the purpose of financing the long term project of the company or write off its capital expenses in future.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Which of the following is not an objective for Reserves?

  1. Meeting a Future Contingency

  2. Strengthening the general financial position of the business

  3. Redeeming a long term liability

  4. Appreciating asset
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Reserves are created to strengthen the business organisation, for contingencies and liquidity. As per accounting principles assets can only be appreciated under re-constitutional conditions.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Which of the following is not an example of reserves?

  1. General Reserve

  2. Revenue Reserve

  3. Dividend Equalization Reserve

  4. Securities Premium
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Reserves are appropriations against profits , they are created from profits for future applications, securities premium is collected when share are issued over its face value hence its not a reserve.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Following are shown under the head Reserves and Surpluses.

  1. General reserve

  2. Workmen compensation fund

  3. Investment fluctuation fund

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.
it is created as a matter of prudence out of profits.
Following are the examples of reserve - General reserve, Workmen compensation fund, investment fluctuation fund, Capital redemption reserve, Debenture redemption reserve, etc.
Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Creation of reserves ______ the amount of profits available for distribution among the owners of the business.

  1. Neutralize

  2. Increase

  3. Reduces

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Reduces.

Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.
it is created as a matter of prudence out of profits and hence creation of reserves reduces the amount of profits available for distribution among the owners of the business.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Whenever any provision is created __________ is debited.

  1. Profit and loss A/c

  2. Trading A/c

  3. Cash A/c

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Provisions  are created for anticipated losses or towards the expenses which are due and payable. 

All provisions are created out of profits hence while creating the provision account, profit & loss account is debited. 

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Reserves are the __________.

  1. Appropriations of profit

  2. Appropriations of loss

  3. Recognition of loss

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.