Depreciation, Provisions and Reserves · Class 11 · CBSE · Commerce Accountancy
What is the key difference between a Provision and a Reserve?
Practice question from Depreciation, Provisions and Reserves (Class 11 · CBSE · Commerce Accountancy), with the correct answer and a step-by-step solution.
medium · MCQ · Q-485175
What is the key difference between a Provision and a Reserve?
- A.Provisions are created for known liabilities of uncertain amount, while reserves are created for strengthening financial position or unknown contingencies.Correct answer
- B.Provisions are appropriations of profit, while reserves are charges against profit.
- C.Provisions cannot be invested outside the business, whereas reserves must always be invested.
- D.Provisions appear on the asset side, while reserves appear on the liability side.
Solution
Provisions are a charge against profits for known liabilities where exact amounts are uncertain. Reserves are an appropriation of profits retained to strengthen financial position or meet future unknown contingencies.
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