Tag: provision and reserves

Questions Related to provision and reserves

Provisions are amounts set aside out of profits and other surpluses for:

accountancy provisions and reserves reserves provisions provision and reserves

  1. Meeting a liability arising out of arbitration

  2. Meeting a liability, the amount of which can be determined with exact figure

  3. Meeting an eventuality arising out of revaluation of assets in ordinary course of business

  4. Meeting known or unknown contingency that may arise in future.

Show answer
Correct Option: C
Explanation:

A provision is an amount that you put in aside in your accounts to cover a future liability.

The purpose of a provision is to make a current year’s balance more accurate, as there may be costs which could, to some extent, be accounted for in either the current or previous financial year. These costs that distinctly belong to a specific year could be misleading if accounted for in the future.
A provision is not a form of saving, even though it is an amount that is put aside for a future possible cost or obligation. Provisions resulting impact is a reduction in the company's equity.
When accounting, provisions are recognized on the balance sheet and then expensed on the income statement.

Which Section of Companies Act 2013,describes the provisions regarding 'Additional Directors'?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Section 160(1)

  2. Section 161(1)

  3. Section 262(3)

  4. Section 262(2)

Show answer
Correct Option: B
Explanation:

 Section 161(1) – Appointment of additional director

1.      The Board of directors may, if authorized by the articles, appoint additional directors. Such additional directors may hold office only up to the date of the annual general meeting.

2.       If the AGM of the company is not held or cannot  be held the person appointed as the additional director vacates his office on the last day on which AGM should have been held.

3.       It may be noted that a person who fails to get appointed as a additional director in a general meeting cannot be appointed as the additional director.

4.       If such a person, while he was the additional director of a company, had been appointed the Managing Director,  The latter appointment (i.e., the managing director) also ceases simultaneously with the termination of his directorship at the commencement of the annual general meeting.

Provision can be shown as ________ from asset.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Deduction

  2. Addition

  3. Both A and B

  4. None

Show answer
Correct Option: A
Explanation:


A provision for anticipated expenditure is to be disclosed under the head 'current liabilities and provisions' whereas a provision for an anticipated loss (provision for doubtful debts) is to be shown as a deduction from the asset which is likely to result in a loss.

Give journal entry for:

Bad debts debited to profit and loss account.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Profit & Loss A/c Dr.

    To Bad debts A/c

  2. Profit and Loss A/c Dr.

    To Provision for doubtful debts A/c

  3. Bad debts A/c Dr.

    To Sundry debtors A/c

  4. None of the above

Show answer
Correct Option: A
Explanation:

Amount which is not recoverable from the debtors is called bad debts. Bad debts is a loss for the organization and should be debited to profit & loss account. Following journal entry will be passed:


Profit & Loss A/c                                Dr.
            To Bad Debts A/c

Objective of provision is ____________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. To make more profit

  2. To ascertain incomes/gains

  3. To ascertain the correct profit

  4. All of the above

Show answer
Correct Option: C
Explanation:

Provisions are created against the anticipated losses or for the expenses which are due but not paid. 

Objective of provision is to ascertain the true and correct profit by taking into consideration the probable losses for which exact amount cannot be ascertained.

_________ is made to know liability or expense pertaining to current accounting period.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Provision

  2. Reserve

  3. Appropriation

  4. None

Show answer
Correct Option: A
Explanation:

The term provision refers to any of the following amounts :

1. The amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets; or
2. The amount retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.

Provision is created to cover a loss in the value of assets, or a loss or expenses, the amount of which cannot be determined with substantial accuracy.

___________ are those debtors who may pay but business firm isi not sure about the collection of full amount from them.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Good Debts

  2. Bad Debts

  3. Doubtful Debts

  4. None

Show answer
Correct Option: C
Explanation:

Option C is correct. A debtor is a person that owes money to business due to sale of goods or services on credit. Doubtful debts are those debtors that might become a bad debt in future. 

Business is not sure about the collection of amount. In this case, a reserve is created known as reserve for doubtful debts.

__________ are those debtors from where collection of money is not possible and amount given as a credit is certain loss.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Good Debts

  2. Bad Debts

  3. Doubtful Debts

  4. None

Show answer
Correct Option: B
Explanation:

Bad Debt is a debt which is not collectible and is worthless to the Creditor. It is usually a product of the debtor which has gone for bankruptcy. Bad Debts can also occur when the collection cost is more than the amount of the debt.

_______ is shown either by way of a deduction from particular asset for which it is created.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Provision

  2. Appropriations

  3. Reserve

  4. None

Show answer
Correct Option: A
Explanation:

Provision is shown either on assets side by way of deduction from the respective asset in relation to which it has been created or on the liabilities side under the sub-head 'Provisions'

Sundry Debtors closing balance Rs. 20000 , Further Bad debts Rs. 1000 , Provision for Bad Debts 5% , Ascertain the amount of Provision______.

accountancy provisions and reserves reserves provisions provision and reserves

  1. 1900

  2. 800

  3. 850

  4. 950

Show answer
Correct Option: D
Explanation:

Solution to the given problem is as under:


Sundry Debtors                                                  Rs.20000
Less: Further Bad Debts                                    Rs. 1000
                                                                           -----------------
Net Debtors                                                       Rs.19000

Provision for Bad Debts @ 5%  on Rs.19000   Rs.950.