Chapter 7: Reserves And Provisions — Online MCQ Test
AUDITING · CLASS 12th · Tamil Nadu State Board
Practice Chapter 7: Reserves And Provisions with a free chapter-wise online MCQ test.
This chapter covers: Exploring accounting allocations this chapter details the creation mechanisms and audit requirements for reserves and provisions. Students analyze capital reserves revenue reserves....
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Chapter 7: Reserves And Provisions — Important Questions & Answers
What is a reserve?
- A. An amount set aside out of profits for a known liability
- B. An amount set aside out of profits to strengthen the financial position of the business
- C. A liability payable within one year
- D. An expense already paid
Answer: B. An amount set aside out of profits to strengthen the financial position of the business
A reserve is an appropriation of profits kept aside for general or specific strengthening of the business. It is not created to meet a known liability.
A reserve is an appropriation of profits kept aside for general or specific strengthening of the business. It is not created to meet a known liability.
Which of the following is a provision?
- A. Dividend equalisation reserve
- B. General reserve
- C. Provision for doubtful debts
- D. Capital reserve
Answer: C. Provision for doubtful debts
Provision for doubtful debts is created to cover an expected loss from bad debts. It is a charge against profits.
Provision for doubtful debts is created to cover an expected loss from bad debts. It is a charge against profits.
A business creates a provision for doubtful debts at the end of the year. This is treated as:
- A. An appropriation of profit
- B. A charge against profit
- C. A capital receipt
- D. A loan liability
Answer: B. A charge against profit
Provisions are made to meet expected losses or liabilities and are charged to the Profit and Loss Account. They reduce the current profit.
Provisions are made to meet expected losses or liabilities and are charged to the Profit and Loss Account. They reduce the current profit.
Which of the following is NOT a characteristic of reserve?
- A. It is created out of profits
- B. It may be used to strengthen the financial position
- C. It is created for a known liability
- D. It is generally an appropriation of profit
Answer: C. It is created for a known liability
A reserve is not meant for a known liability. That purpose belongs to a provision, which is made for anticipated obligations or losses.
A reserve is not meant for a known liability. That purpose belongs to a provision, which is made for anticipated obligations or losses.
Which of the following is the best example of a capital reserve created by law or accounting requirement?
- A. Reserve for repairs and renewals
- B. Capital redemption reserve
- C. Provision for income tax
- D. Bad debts reserve
Answer: B. Capital redemption reserve
Capital redemption reserve is a well-known capital reserve created under legal provisions in specific situations. It is not created from trading profits.
Capital redemption reserve is a well-known capital reserve created under legal provisions in specific situations. It is not created from trading profits.