Question { Genpact, 57732 }

Difference between Provision & Reserve?

Answer

Provision is charged to p/l a/c where as reserve is an
appropriation of profit.
Provision is must charged to p/l a/c before calculating
the net profit or loss, but reserve can made only when there
is profit.
Provision is created for specific object, reserve is
created for probable losses.
Provision reduces the net profit and are not invested
in outside securities. Reserves reduces divisible profit can
be invested in outside securities.

Question { 23370 }

What is mean by Debt Equity Ratio ?

Answer

It reflect the relative claim of creditors and shareholders
against the assets of the business.

Debt Equity ratio =long term liabilities/shareholders funds

A Debt equity ratio of 2:1 is considered as ideal.
A firm with a debt equity ratio of 2 or less exposes its
creditors relatively lesser risk. A firm with a high debt
equity ratio expects its creditors to greater risk.