NCERT Solution
Class 11
Accountancy
Depreciation, Provisions and Reserves
distinguish between lsquo provision rsquo and l...

Question:
Distinguish between ‘provision’ and ‘reserve’ .

Answer:

Provision Reserve

Provision refers to an amount that is kept aside from a company’s profit in order to cover probable expenses arising in future or a possible reduction in the value of an asset.

Provisions are important for a business as they address certain expenses in business and payments made for them. Provisions should not be regarded as savings as these are created to meet expenses for an anticipated liability in future.

It appears in the income statement in the form of expenses and is recorded as a current liability in the balance sheet.

Reserve is the term which refers to a sum or percentage of profit that a company retains or keeps aside at the end of a financial year towards meeting future contingencies that may occur.

It is also used to strengthen the business.

Stabilises the financial position of a company by being used for expansion of assets, dividend payments and investments.

Provision	Reserve
Provision refers to an amount that is kept aside from a company’s profit in order to cover probable expenses arising in future or a possible reduction in the value of an asset. Provisions are important for a business as they address certain expenses in business and payments made for them. Provisions should not be regarded as savings as these are created to meet expenses for an anticipated liability in future. It appears in the income statement in the form of expenses and is recorded as a current liability in the balance sheet.	Reserve is the term which refers to a sum or percentage of profit that a company retains or keeps aside at the end of a financial year towards meeting future contingencies that may occur. It is also used to strengthen the business. Stabilises the financial position of a company by being used for expansion of assets, dividend payments and investments.

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Popular questions of class 11 Accountancy

Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.

From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner.

Q: Explain the qualitative characteristics of accounting information.

Q: Describe the role of accounting in the modern world.

Q: What do you mean by an asset and what are different types of assets?

Differentiate between source documents and vouchers.

Complete the following sentences with appropriate words:
(a) Information in financial reports is based on .....................
(b) Internal users are the ..................... of the business entity.
(c) A ..................... would most likely use an entities financial report to determine whether or not the business entity is eligible for a loan.
(d) The Internet has assisted in decreasing the ..................... in issuing financial reports to users.
(e) ..................... users are groups outside the business entity, who uses the information to make decisions about the business entity.
(f) Information is said to be relevent if it is ......................
(g) The process of accounting starts with ............ and ends with ............
(h) Accounting measures the business transactions in terms of ............ units.
(i) Identified and measured economic events should be recording in ............ order.

What is a journal? Give a specimen of journal showing at least five entries.

Define accounting and state its objectives.

Enumerate informational needs of management.

Complete the following work sheet:
(i) If a firm believes that some of its debtors may ′default′, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___________ concept.
(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the ___________ concept.
(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the ___________ concept.
(iv) The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.
(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the ___________.
(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to the ___________.
(vii) The management of a firm is remarkably incompetent, but the firms accountants can not take this into account while preparing book of accounts because of ________ concept.

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₹
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Question:
Distinguish between ‘provision’ and ‘reserve’ .

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Question: Distinguish between ‘provision’ and ‘reserve’ .

< Previous Question

Next Question >

Popular questions of class 11 Accountancy

Recently Viewed Questions of Class 11 Accountancy

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Question:
Distinguish between ‘provision’ and ‘reserve’ .