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what is the distinction between provisions and reserves
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Answer / bindu
Provision is created to meet known liabilities. So that it
will be debited to P&L A/c where as credit will be hitted
to Assets side of the Balance Sheet (reduced from specific
asset for which it has been created.) Provision needs to be
created in case of losses also and this provision is not
used for distribution as dividends among share holders.
Reserve is created for un known liabilities. and it will be
debited to P&L appropriation account and credited to
liability account in balance sheet.Reserve can be created
in case of profits only.And this amount can be used for
distribution as dividend (Unless specific reserves).
| Is This Answer Correct ? | 5 Yes | 1 No |
Answer / h.r. sampath kumar
a) Provision is an amount which is written off or
retained by way of providing for depreciation, renewals
or dimunition in the value of assets or retained by way of
providing for any known liability, the amount of which
cannot be ascertained with substantial accuracy.
b) Reserve shall not include any amount written off or
retained by way of providing for depreciation, renewals
or dimunition in the value of assets or retained by way of
providing for any known liability, the amount of which
cannot be ascertained with substantial accuracy. ( a
negative definition)
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