Tag: provisions and reserves

Questions Related to provisions and reserves

Sales Rs. 50000, Cost of Goods Sold Rs. 30000, operating expenses Rs. 10000
Provision for tax @10% . calculate the provision for tax________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. 1000

  2. 1500

  3. 1200

  4. 1100

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Correct Option: A
Explanation:

Solution to the given problem is given below:


Sales                                                             Rs.50000
Less: Cost of Goods Sold                            Rs.30000
                                                                     -----------------
Gross Profit                                                  Rs.20000
Less:Operating Expenses                           Rs.10000
                                                                     -----------------
Profit before Tax                                          Rs.10000
Provision for Tax @10%                               Rs. 1000

__________ are those from where collection of debt is certain.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Good Debts

  2. Bad debts

  3. Doubtful Debts

  4. None

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Correct Option: A
Explanation:

Option A is correct one.

Anyone having borrowed money or goods from another owes a debt and is under obligation its certain to return the goods or repay the money, usually with interest.

A decrease in the provision for doubtful debts would result in ______________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. an increase in liabilities

  2. a decrease in working capital

  3. a decrease in net profit

  4. an increase in net profit

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Correct Option: D
Explanation:

Provision for Doubtful Debts means the expense reported on the income statement or profit and loss A/c. If Provision for Doubtful Debts is the current period expense associated with the losses from normal credit sales, it will appear as an operating expense usually as part of Selling, General and Administrative Expenses (SG&A). If a provision for doubtful debts would decrease then debit balance of profit and loss A/c would decrease and ultimately net profit would increase.

When depreciation provision method is used, asset is shown at ____________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. cost price

  2. cost less depreciation

  3. replacement value

  4. scrap value

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Correct Option: A
Explanation:
When provision for depreciation account is maintained: Every year, depreciation charged is credited to the Provision for Depreciation Account. At the year-end, in the Balance Sheet, the asset will continue to appear at the original cost and the total amount of depreciation provided will be shown in the Provision for Depreciation Account. Thus, the original cost of the asset and the total amount of depreciation charged is known from Balance sheet. For purposes of depreciation in the Balance Sheet, provision for depreciation may be deducted from the original cost of asset and the balance be shown in the outer column. Alternatively, assets may be shown at the original cost on the asset side and Provision for Depreciation may be shown on the liabilities side.

Which of the following statements is true in case of Joint Venture?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Co-venturer's contribution of goods is debited in Joint Bank A/c.

  2. Co-venturer's contribution in cash is debited in Venturer's personal account.

  3. Discount on discounting of B/R is debited to Venturer's personal account.

  4. Sale proceed received is credited to Joint Venture Account.

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Correct Option: D
Explanation:

A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses, and costs associated with it. 

  • When the sales proceeds or collections Joint bank account. Dr. To joint venture account.  When the collections received by co- ventures  etc, are debited and expenses of joint venture, purchase of goods are credited.

The company maintains provision for bad debts at $5\%$ and its outstanding debtors at the end of the year was Rs 3,00,000. During the year, opening balance of provision for bad debt was Rs. 5000 and bad debt during the year was Rs. 10,000. The debit to profit and loss account for the year ended in respect of provision for debtors will be: 

accountancy provisions and reserves reserves provisions provision and reserves

  1. Rs. 50,000

  2. Rs. 25,000

  3. Rs. 20,000

  4. Rs. 15,000

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Correct Option: C
Explanation:

New provision = 300000*5/100 = 15000
Old provision = 5000

Bad debts during the year = 10000
Calculation of charge in profit and loss account is : - 
New Provision + Bad debts - previous year Provision
 = 15000 + 10000 - 5000 
 = 20000

Opening balance of debtors is Rs. 18,000. $5\%$ provision for bad debt is required to be provided on debtors. If the debtor's balance is increased during the year by Rs. 5,000 and the provision for bad debt has a debit balance of Rs. 350 after transferring bad debts, the charge against the profit and loss account is:

accountancy provisions and reserves reserves provisions provision and reserves

  1. Rs. 1950

  2. Rs. 1500

  3. Rs. 650

  4. Rs. 550

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Correct Option: B
Explanation:
Option B is correct. 
New provision = 23000*5/100 = 1150 
new provision = 1150
old provsion = (350)
Charge against profit and loss is = New provision - old provision
                                                         1150 - ( -350)
                                                       = 1500

In the absence of specific provision in the partnership deed at what rate interest on drawing of the partners would be allowed ______ .

accountancy provisions and reserves reserves provisions provision and reserves

  1. 8%

  2. 10%

  3. 6%

  4. Nil

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Correct Option: D

The entry for creating a provision for bad debts is ___________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. debit provision for bad debts a/c and credit debtors a/c

  2. debit debtors a/c and credit provision for bad debts a/c

  3. debit provision for bad debts a/c and credit profit and loss a/c

  4. debit profit and loss a/c and credit provision for bad debts a/c

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Correct Option: D
Explanation:

simple reason that out of the credit sales made during the particular year, some debts are likely to become bad in the next year due to non- payments. The correct accounting is to make provision for such likely bad debts every year 

The entry for creating a provision is :
  profit and loss A/C Dr.
  To Provision for Doubtful debts.

A Trial balance contains the following information: Discount allowed Rs.1,500. Provision for discount on debtors Rs.1,100. It is desired to make a provision for discount on debtors of Rs.1,800 at the end of the year.The amount to be debited to the Profit and loss Account is :

accountancy provisions and reserves reserves provisions provision and reserves

  1. Rs. 2,200

  2. Rs. 4,200

  3. Rs. 1,700

  4. Rs.3,200

Show answer
Correct Option: A