Tag: provisions and reserves

Questions Related to provisions and reserves

Trial balance provides you the following information:
Debtors                              80,000
Bad debts                             2,000
Provision for bad debts        4,000
It is desired to maintain a provision for bad debt of  1,000. State the amount to be debited/credited in profit and loss account.

accountancy provisions and reserves reserves provisions provision and reserves

  1. 5,000 (Debit)

  2. 3,000 (Debit)

  3. 1,000 (Credit)

  4. None of these

Show answer
Correct Option: C
Explanation:

The balance in provision for bad debts is appearing in trial balance Rs.4000, of which bad debts of Rs.2000 is written off. Balance lying in provision account is now Rs.2000. It is desired to maintain a provision for bad debts of Rs.1000 only, hence an excess provision of Rs.1000 to be written back to profit & loss account by crediting the profit & loss a/c. 


                                           Provision for Bad Debts A/c

Particulars                             Amount                   Particulars                     Amount
To Bad debts                         2000                    By  Op Balance b/f            4000
To Profit & Loss A/c               1000
To Clo Balance c/d                1000
                                             -----------                                                              ----------
                                                4000                                                                4000
                                             ------------                                                            -----------

The provision for establishment of a 'District Consumer Protection Council' was made by the year _________ .

accountancy provisions and reserves reserves provisions provision and reserves

  1. 1988

  2. 1993

  3. 2002

  4. 2008

Show answer
Correct Option: C

Provisions are shown in liabilities along with ___________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Capital

  2. Long-term liabilities

  3. Current liabilities

  4. None of the Above

Show answer
Correct Option: C
Explanation:

A provision is recorded in a liability account, which is typically classified on the balance sheet as a current liability.

X, Y and Z are partners in a firm.At the time of division of profit for the year there was dispute between the partners.Profits before interest on partner's capital was Rs.15,000 and Y demands interest at 24%p.a. on his loan of Rs.80,000. There was no agreement on this point.Calculate the amount payable to X, Y and Z respectively.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Rs. 5,000 to each partner

  2. Loss of Rs. 4,200 for X and Z & Y will take home Rs.15,000

  3. Rs.3,400 for X, Rs. 8,200 for Y and Rs. 3,400 for Z

  4. Rs. 5,000 to each partner.

Show answer
Correct Option: C
Explanation:

In the absence of partnership deed, Interest on loan at 6% will be calculated and also profit will be shared equally.

Interest on loan = 80000*6/100 = 4800. 
Profit available for distribution = 15000 - 4800 = 10200 
Profit distributed = 10200/ 3 = 3400.
Share of X = 3400.
Share of Y = 3400+4800 = 8200
share of Z = 3400. 

The provision for discount on debtors is calculated on the amount of debtors ______________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. before deducting the provision for doubtful debts

  2. left after deducting the provision for doubtful debts

  3. before deducting the actual bad debts and the provision for doubtful debts

  4. that is available at the time of calculating provisions

Show answer
Correct Option: B

Debtor's A/c shows debit balance.

accountancy provisions and reserves reserves provisions provision and reserves

  1. True

  2. False

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Correct Option: A
Explanation:

An asset is a resource with economic value that will provide benefit in future. Debtors are an assets for organisation because they will provide cash in future. All assets have debit balance according to real account rule. That's why Debtors's a/c shows debit balance. 

Provision for doubtful debts is _________________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Debited to Sundry Debtors Account

  2. Credited to Sundry Debtors Account

  3. Debited to Bad Debts Account

  4. Debited to Profit & Loss Account

Show answer
Correct Option: D
Explanation:

The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. Later, when you identify a specific customer invoice that is not going to be paid, eliminate it against the provision for doubtful debts.

Match List I (Provision of Partnership Act) with List II (Matters with which the provision are related) and select the correct answer using the codes given below the lists:

List I List II
Interest must be allowed at 6% p.a Drawings of Partners
No interest shall be allowed Net loss of the firm for an accounting year
No interest shall be charged Capitals contributed by the partners
Must be shared equally by all the partners unless otherwise agreed Loan given by a partner to the firm
accountancy provisions and reserves reserves provisions provision and reserves

  1. A - 1, B-3, C-2, D-4

  2. A - 4, B-3, C-2, D-1

  3. A - 3, B-2, C-4, D-1

  4. A - 4, B-3, C-1, D-2

Show answer
Correct Option: D

Rebate on bills discounted is shown in the Balance Sheet as _______.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Advances

  2. Other liabilities and provisions

  3. Other income

  4. Reserves & surplus

Show answer
Correct Option: B
Explanation:

Option B is correct one.

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned. In bank balance sheet it shown under the head Other liability and provision.


Provision for income tax is shown in bank's Balance Sheet as _______.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Contingent liability

  2. Contingent asset

  3. Borrowings

  4. Other liabilities and provisions

Show answer
Correct Option: D
Explanation:

The provision for income taxes on an income statement is the amount of income taxes a company estimates it will pay in a given year.In the Balance sheet of bank it shown under the head other Liabilities and Provission.