what is secret reserve? how is it created?
Answers
Explanation:
A secret reserve is the amount by which the assets of an organization are understated or its liabilities are overstated. An entity might establish a secret reserve for competitive reasons, to hide from other businesses that it is in a better financial position than appears in its financial statements. However, a secret reserve means that the information provided to shareholders is false and misleading.
There are several ways to establish a secret reserve, such as accelerating the depreciation of fixed assets, writing off assets entirely, undervaluing the market value of assets and by creating excessively large reserves for various liabilities or asset write-downs.
Answer:
Secret Reserve:-
The term secret reserve refers to a reserve the existence of which is not disclosed in the Balance Sheet. Secret reserves are also called Hidden Reserve or Internal Reserve. Such a reserve is not disclosed on the Balance Sheet. It can be said that there is a surplus of assets over liabilities and that surplus is not disclosed or shown by the Balance Sheet.