Chapter 3: Reserves and Provisions

In this course we learn the meaning and importance of reserves and provisions, along with other important concepts.

Details

Certain accounting concepts, principles and conventions are followed while recording business transactions in the books of accounts and preparing final accounts. Going concern is a basic assumption among these accounting concepts, principles and conventions. As per this assumption, it is assumed that the existence of firm will continue for a considerably long period and it won't be dissolved in the near future.
In order for the firm to exist, it should be in a financially sound position.

For this purpose, some amount from the profit is appropriated and transferred to reserve, so that the firm can exist even in adverse situation and also so the firm can grow. To fulfill this objective, the principle of prudence is also followed in accounts. As per this principle, a part of the profit of business is kept aside and transferred to provision in advance to protect the business from future probable expenses or losses. Thus, reserves and provisions enhance long term financial soundness of the business and protect the business against contingencies. Here we shall study reserves and provisions in detail.

In this course:
+ Introduction
+ Meaning, Characteristics and Importance of Provision and Reserve
+ Types of Reserves
+ Reserve Fund
+ Difference between General Reserve and Provision
+ Difference between General Reserve and Capital Reserve


Curriculum

  • Lecture: Reserves and Provisions
    45 m 25 s
  • Reserves and Provisions Quiz
    5 questions
  • State the types of reserves.
    1 m
  • What is reserve fund?
    1 m
  • What is secret reserve?
    1 m
  • Which reserve is used to write off loss on sale of fixed assets?
    1 m
  • Give four illustrations of capital reserve.
    1 m
  • Give four illustrations of provision
    1 m
  • What is Provision?
    1 m
  • State the characteristics of Provision.
    1 m
  • What is the importance of Provision?
    1 m
  • State the meaning of reserve.
    1 m
  • What is the importance of reserve in business?
    1 m
  • Practice Quiz
    15 questions
  • From which account is the amount of provision appropriated?
    1 m
  • Why provision has to be made even in the year of losses in business?
    1 m
  • Why is provision compulsory?
    1 m
  • How is provision shown in the balance sheet?
    1 m
  • Which reserve is created to satisfy (face) unexpected requirements?
    1 m
  • Why is dividend equalisation fund created?
    1 m
  • What is 'Debenture redemption reserve'?
    1 m
  • What is 'sinking fund'?
    1 m
  • Why is sinking fund created?
    1 m
  • From which account is sinking fund created for replacement of fixed assets?
    1 m
  • Which reserve cannot be shown in the account?
    1 m
  • Why is General reserve considered to be an anchor during bad times (problems)?
    1 m
  • Clarify the importance of provision.
    1 m
  • Why is a reserve created in business?
    1 m
  • What is specific reserve? State its types.
    1 m 21 s
  • How is the secret reserve created?
    1 m
  • What is Capital Reserve? State its uses.
    1 m
  • 48 minutes of content
  • 28 texts
  • 2 quizzes
  • 31+ students
  • 24x7 support