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WHAT ARE THE DIFFERENCE BETWEEN RESERVES AND PROVISIONS?
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Answer Posted / k. phalguna rao
Reserves: every year transfer some amount from net profits
of the company for future needs to purchase plan &
machinary
for Ex: Machine value 10 lacs and it's working capacity 10
years it means every year it's working capacity will be
reduced after 10 years this machine value become 0 so we
have to purchase new machine for purchase the machine we
have to spend huge money so we cannot effort from working
capital
New machinary will be purchased with the funds of Reserves
and surplus
Provisions: Generally provisions are made for two things
first one is for Bad debts and second one is for year end
adjustments
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