Nothing Special   »   [go: up one dir, main page]
Scribd Logo
Upload

Welcome to Scribd!

  • 1K views

    Provisions and Reserves

    Uploaded by

    sujan Bhandari
    This document discusses the meaning and importance of provisions and reserves. Provisions are amounts set aside from profits to cover future liabilities that are uncertain. Reserves are appropriations of profits that strengthen a business's financial position rather than covering specific liabilities. Maintaining adequate provisions and reserves is important for replacing assets, meeting contingencies, ensuring uniform expenses are reported, and complying with accounting principles. Reserves can be used for internal financing and enhancing a business's reputation. There are two types of reserves - revenue and capital - which have different uses and accounting treatments.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd

    Provisions and Reserves

    Uploaded by

    sujan Bhandari
    1K views9 pages
    This document discusses the meaning and importance of provisions and reserves. Provisions are amounts set aside from profits to cover future liabilities that are uncertain. Reserves are appropriations of profits that strengthen a business's financial position rather than covering specific liabilities. Maintaining adequate provisions and reserves is important for replacing assets, meeting contingencies, ensuring uniform expenses are reported, and complying with accounting principles. Reserves can be used for internal financing and enhancing a business's reputation. There are two types of reserves - revenue and capital - which have different uses and accounting treatments.

    Original Description:

    Original Title

    Provisions and Reserves.ppt

    Copyright

    © © All Rights Reserved

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses the meaning and importance of provisions and reserves. Provisions are amounts set aside from profits to cover future liabilities that are uncertain. Reserves are appropriations of profits that strengthen a business's financial position rather than covering specific liabilities. Maintaining adequate provisions and reserves is important for replacing assets, meeting contingencies, ensuring uniform expenses are reported, and complying with accounting principles. Reserves can be used for internal financing and enhancing a business's reputation. There are two types of reserves - revenue and capital - which have different uses and accounting treatments.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    1K views9 pages

    Provisions and Reserves

    Uploaded by

    sujan Bhandari
    This document discusses the meaning and importance of provisions and reserves. Provisions are amounts set aside from profits to cover future liabilities that are uncertain. Reserves are appropriations of profits that strengthen a business's financial position rather than covering specific liabilities. Maintaining adequate provisions and reserves is important for replacing assets, meeting contingencies, ensuring uniform expenses are reported, and complying with accounting principles. Reserves can be used for internal financing and enhancing a business's reputation. There are two types of reserves - revenue and capital - which have different uses and accounting treatments.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 9
    At a glance
    Powered by AI
    The key takeaways are about the meaning and importance of provisions and reserves for accounting purposes.

    The objectives of providing provisions are to meet depreciation, renewal or diminution in the value of assets, to meet expected contingencies, and to meet known liabilities.

    The types of reserves are revenue reserves and capital reserves. Revenue reserves can be further classified into general reserves, specific reserves, and secret reserves.

    TOPIC: PROVISION AND RESERVES.

    MEANING OF PROVISION:
    Provision means setting aside a part of the profit for meeting a
    liability in future, the amount of which is not known accurately at the
    time of finalization of financial statements.
    E.g., are:-
    Provision for Legal Damages,
     Provision for Depreciation,
    Provision for Taxation,
    Provision for Doubtful Debts,
     Provision for Discount on Debtors etc.
    OBJECTIVE OF PROVIDING PROVISION:

    1.To meet depreciation, renewal or diminution in


    the value of asset.

    2.To meet expected contingency.

    3.To meet known liability.


    IMPORTANCE OF PROVISION:
    1.Funds for replacement of asset.
    2.Funds for diminution in the value of assets.
    3.Uniform charge on income statements.
    4.In compliance of principle of prudence.
    MEANING OF RESERVES:
    Reserve means an appropriation of profits.

    To strengthen the liquid resources of the business


    enterprise and not for meeting any liability, contingency or
    any other commitment of the business.

    All reserves appear on the liability side of the Balance


    Sheet.
    IMPORTANCE OF RESERVES:
    1.Strengthening the financial position of business.
    2.Source of internal financing.
    3.Enhancing the reputation of business.
    4.Keeping working capital intact.
    TYPES OF RESERVES:
     Two types of reserves (1) Revenue Reserves and (2) Capital Reserves.
    (1). Revenue Reserves:
    Revenue reserves are created out of retaining profits.
    They are usually available for distribution as profit in the future.
    Revenue reserves may be further classified into: (a) General Reserves, (b)
    Specific Reserves and (c) Secret Reserve.
    (a)General Reserves:
    These reserves are that amount of profits which are set aside to meet
    some future contingencies and not created for any specific purpose.
    These are generally retained for strengthening the financial position of the
    business and to provide additional working capital for the business when
    needed.
    (b) Specific Reserves:
    These reserves are created for some purpose and are utilized for these purposes only.
    These reserves are generally earmarked against some particular asset and are
    expressed as reserve fund.

    (c) Secret Reserve:


    It is a reserve that does not appear in the balance sheet. It can be created in the year
    of higher profits and can be merged with the profits during that year.
    It can be created for undervaluing of stock, making excessive provisions than the
    required, charging capital expenditure to revenue etc.
    (2). Capital Reserves:
    These are the reserves created out of capital profit and are not generally
    distributed as profits.
    These reserves can be utilized for writing-off capital losses.
    These reserves are not available for shareholders as dividend.
    These reserves may or may not involve any receipts of cash.
    E.g., Profit on sale of fixed assets, profit on revaluation of fixed assets,
    profit on redemption of debentures, profit prior for incorporation etc.

    You might also like