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| 1. |
advantages of secret reserve |
| Answer» Secret reserve is a reserve which does not appear in the balance sheet. It may also help to reduce the disclosed profits and also the tax liability. The secret reserve can be merged with the profits during the lean periods to show improved profits. Management may choose to create of a secret reserve by charging higher depreciation than required. It is termed as \'Secret Reserve\', as it is not known to outside stakeholders. Secret reserve can also be created by way of:\tUndervaluation of inventories/stock\tCharging capital expenditure to profit and loss account\tShowing contingent liabilities as actual liabilities | |