Account class 11 Provision and Reserves

1. ‘Provision’ is a charge against profits.

True

False

2. Provision is to meet an unknown liability.

True

False

3. Creation of reserve reduces taxable profits of the business.

True

False

4. Creation of reserve is discretionary.

True

False

5. Dividend equalization reserve is an example of general reserve.

True

False

6. General reserve can be used only for some specific purposes.

True

False

7. Capital reserves are normally created out of free or distributable profits.

True

False

8. Making excessive provision for doubtful debts builds up the secret reserves in the business.

True

False

9. Reserve created for maintaining a stable rate of dividend is treated as secret reserve.

True

False

10. Usually, capital reserve are not available for distribution as cash dividends.

True

False

11. If the amount of any known liability cannot be determined accurately.

Provision should be created

Definite liability should be created

Reserve should be created

Should be shown as a contingent liability

12. Which of the following is a correct difference between a provision and reserve?

A provision is created out of legal necessity whereas a reserve is created as a matter of prudence.

A provision is invested whereas reserve is not invested

A provision is an appropriation of profit whereas a reserve is a charge against profit

A provision can be used for distribution of dividend whereas a reserve cannot be allowed to be used for distribution of dividend.

13. Which of the following is a correct distinction between a revenue reserve and a capital reserve?

A revenue reserve is created out of capital profits whereas a capital reserve is created out of business profits.

A revenue reserve can be used for distribution of divided with certain precondition whereas a capital reserve can be used for distribution of dividend without any preconditions

A revenue reserve is created for strengthening the financial position whereas capital reserve is created for meeting capital losses or to be used for purpose specified by the companies Act.

There is no distinction between revenue reserve and capital reserve

14. Which of the following statements are correct about a ‘Provision’?

1.Provisions are a charge against the profit of an enterprise

2.Provision are created out of divisible profits

3.Creation of provisions are not necessary for a business

4.Provisions are created to meet a known liability

1,2 and 3

2 and 4 only

1,2 and 4

1 and 4 only

15. Which of the following statements is not appropriate in relation to “Provision”?

Provision is a charge against profit

Provision is created for known liability

Provision is created for strengthening the financial position of the business.

Creation of provision satisfies the principle of conservatism.

Question 1 of 15

Account class 11 Provision and Reserves

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