Tag: reserves

Questions Related to reserves

__________is reserve created to meet any loss due to natural calamities.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Revenue reserve

  2. Capital reserve

  3. Catastrophic reserve

  4. None of these

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Correct Option: C
Explanation:
Catastrophic reserve means a reserve which is meant for meeting losses arising from an entirely unexpected set of events and not for any specific purpose. This reserve is in the nature of an amount set aside for the potential future liability against the insurance policies.

_________ are known as an amount kept aside and retained in the business for future needs.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Reserves

  2. Provisions

  3. Asset

  4. Liability

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Correct Option: A
Explanation:

Reserves are appropriations against profits, they are created from profits for future applications. Net profit at the end of the year is transferred in specific proportions to Reserves keeping a side this parts of profits.

___________ is created out of revenue profits from business operations.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Revenue Reserves

  2. General Reserve

  3. Reserve Fund

  4. Dividend equalisation Reserve

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Correct Option: A
Explanation:

Revenue profit means Profit earned in normal course of business and reserve created out of this undistributed profits are called revenue reserves.

____________ is created out of capital profits arising from non operating activities.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Capital Reserve

  2. Securities Premium

  3. Capital Redemption Reserve

  4. None

Show answer
Correct Option: A
Explanation:

The capital reserve is the reserve which is created out of the profits of the company generated from its non-operating activities during a period of time and is retained for the purpose of financing the long term project of the company or write off its capital expenses in future.

Which of the following is not an objective for Reserves?

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Meeting a Future Contingency

  2. Strengthening the general financial position of the business

  3. Redeeming a long term liability

  4. Appreciating asset

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Correct Option: D
Explanation:

Reserves are created to strengthen the business organisation, for contingencies and liquidity. As per accounting principles assets can only be appreciated under re-constitutional conditions.

Which of the following is not an example of reserves?

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. General Reserve

  2. Revenue Reserve

  3. Dividend Equalization Reserve

  4. Securities Premium

Show answer
Correct Option: D
Explanation:

Reserves are appropriations against profits , they are created from profits for future applications, securities premium is collected when share are issued over its face value hence its not a reserve.

Following are shown under the head Reserves and Surpluses.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. General reserve

  2. Workmen compensation fund

  3. Investment fluctuation fund

  4. All of the above

Show answer
Correct Option: D
Explanation:
Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.
it is created as a matter of prudence out of profits.
Following are the examples of reserve - General reserve, Workmen compensation fund, investment fluctuation fund, Capital redemption reserve, Debenture redemption reserve, etc.

Creation of reserves ______ the amount of profits available for distribution among the owners of the business.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Neutralize

  2. Increase

  3. Reduces

  4. None of the above

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Correct Option: C
Explanation:

Reduces.

Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.
it is created as a matter of prudence out of profits and hence creation of reserves reduces the amount of profits available for distribution among the owners of the business.

Whenever any provision is created __________ is debited.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Profit and loss A/c

  2. Trading A/c

  3. Cash A/c

  4. None of the above

Show answer
Correct Option: A
Explanation:

Provisions  are created for anticipated losses or towards the expenses which are due and payable. 

All provisions are created out of profits hence while creating the provision account, profit & loss account is debited. 

Reserves are the __________.

book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

  1. Appropriations of profit

  2. Appropriations of loss

  3. Recognition of loss

  4. All of the above

Show answer
Correct Option: A
Explanation:

Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.