Explain difference between reserves and provisions on the basis of Nature,
Purpose, Presentation in balance sheet, Effect on taxable profit.
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Answer:
Difference between Provision and Reserve
Difference between Provision and ReserveBasis of Difference Provision Reserve
Difference between Provision and ReserveBasis of Difference Provision ReserveBasic Nature Charge against profit Appropriation of profit.
Difference between Provision and ReserveBasis of Difference Provision ReserveBasic Nature Charge against profit Appropriation of profit.Purpose It is created for a known liability or expense pertaining to current accounting period, the amount of which is not certain. It is made for strengthening the financial position of the business. Some reserves are also mandatory under law.
Difference between Provision and ReserveBasis of Difference Provision ReserveBasic Nature Charge against profit Appropriation of profit.Purpose It is created for a known liability or expense pertaining to current accounting period, the amount of which is not certain. It is made for strengthening the financial position of the business. Some reserves are also mandatory under law.Effect on taxable profits It reduces taxable profits. It has no effect on taxable profit.
Difference between Provision and ReserveBasis of Difference Provision ReserveBasic Nature Charge against profit Appropriation of profit.Purpose It is created for a known liability or expense pertaining to current accounting period, the amount of which is not certain. It is made for strengthening the financial position of the business. Some reserves are also mandatory under law.Effect on taxable profits It reduces taxable profits. It has no effect on taxable profit.Presentation in financial statements It is shown in the liabilities side along with current liabilities. As it is a liability against some specified thing. It is shown in balance sheet liabilities side after capital amount.
Difference between Provision and ReserveBasis of Difference Provision ReserveBasic Nature Charge against profit Appropriation of profit.Purpose It is created for a known liability or expense pertaining to current accounting period, the amount of which is not certain. It is made for strengthening the financial position of the business. Some reserves are also mandatory under law.Effect on taxable profits It reduces taxable profits. It has no effect on taxable profit.Presentation in financial statements It is shown in the liabilities side along with current liabilities. As it is a liability against some specified thing. It is shown in balance sheet liabilities side after capital amount.Uses It can be used for specified purpose and cannot used for dividend distribution. It can be used for dividend distribution
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