Tag: reserve and fund

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Questions Related to reserve and fund

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Provision is created for ________.

  1. known liabilities

  2. unknown liabilities

  3. strengthening financial position

  4. distribution of dividend
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

b"A provision is an amount set aside from a company's profit to cover an expected liability  or a decrease in the value of an asset,even though the specific amount might be unknown. A provision  is not a form of saving: instead, it is a recognition of an upcoming liability."

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

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

  1. Only one venturer bears the risk.

  2. Only one venturer can sell the goods.

  3. Only one venturer can purchase the goods.

  4. In joint venture, provisions of the Partnership Act apply
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option D is the correct one.
Any person competent to contract, a company, partnership firm or a corporation can enter into a Joint Venture in India. It can be in the form of partnership firm, corporation or any other business entity which the parties may choose. A Joint Venture can be formed for any lawful business purpose.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

A provision should be recognized when _______________.

  1. An enterprise has a present obligation as result of a past event

  2. It is probable that an outflow of will be required to settle the obligation

  3. A reliable estimate can be made of the amount of the obligation

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

A provision is recognized when there is a present obligation from a past event, it is probable that an outflow of resources will be required, and a reliable estimate can be made. All three conditions must be met.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

The entry for creating a provision for bad debts is:

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

The provision for doubtful debts is the estimated amount of bad debts that will arise from accounts receivable that have been issued but not yet collected. It is identical to the allowance for doubtful accounts. The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts as soon as invoices are issued to customers, rather than waiting several months to find out exactly which invoices turned out to be noncollectable.

Journal entry for creating a provision for bad debts is:
      Profit and loss A/c          Dr.
                   To Provisions for bad debts A/c

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation, is termed as ____________.

  1. Provision

  2. Liability

  3. Contingent liability

  4. None of these.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Provision is an amount set aside, by charging it to profit and loss account or statement of profit and loss, to provide for a known liability the amount of which cannot be determined with accuracy. It is charged in the profit and loss account on an estimate basis. In other words, a provision is a charge against profit for the purpose of providing any liability or loss.
Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

The provision for bad debts is made by crediting __________.

  1. Profit and loss account

  2. Debtors account

  3. Provision for bad debts account

  4. Trading account
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for doubtful accounts, or Allowance for Uncollectible Accounts. In this case, the account Provision for Bad Debts is a  contra asset account (an asset account with a credit balance). It is used along with the account Account receivable in order for the balance sheet to report the net realizable value of the accounts receivable.

Provision for bad debts is made by debiting profit and loss A/c and crediting provision for bad debts account.

 

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

A ____________ is a liability which can be measured only by using a substantial degree of estimation.

  1. Provision

  2. Non-current liability

  3. Current liability

  4. Contingent liability
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Provision is an amount set aside, by charging it to Profit and Loss A/c or Statement of profit and loss, to provide for a known liability, the amount of which cannot be determined with accuracy. It is charged in the profit and loss account on estimate basis. In other words, a provision is a charge against profit for the purpose of providing for any liability or loss. Provision for depreciation, provision for doubtful debts, provision for repairs are few examples of provisions.
Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

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

  1. 8%

  2. 10%

  3. 6%

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

Where there is neither partnership deed nor express agreementv or partnership deed is there but silent on any matter, then the relevant provisions of the Indian partnership act, 1932, would be applicale. As per these provisions no interest is to be allowed on capital.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Provision is ______________.

  1. An appropriation of profits

  2. A charge against the profits

  3. Writing off losses

  4. Charging depreciation
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The term provision refers to any of the following amounts :

(a) The amount written off or reatined by way of providing for depreciation, renewals or diminution in value of assets; or
(b) The amount retained by way of providing  for any known liability of which the amount cannot be determined with substantial accuracy.
Provision is a charge against profit and is required to be created irrespective of the amount of profit.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Any profit or loss on the sale of sinking (depreciation) fund investment is transferred to:

  1. Profit and loss account

  2. Asset account

  3. Sinking fund account (depreciation fund account)

  4. Depreciation A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Option C is the correct one.

Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. Also, the sale proceeds of the old asset and any profit or loss from the sale of investments are transferred to the Sinking Fund Account.this amount also invested in govt.securities.