28 + Interview Questions in PROVISIONS-AND-RESERVES IN GENERAL AWARENESS Page 1 InterviewSolution

1.	Making excessive provision for doubtful debts builds up the secret reserves in the business.
Answer» Correct Answer - True

Discussion

2.	Which of the following is a correct difference between a provision and reserve ?A. A provision is created out of a legal necessity whereas a reserve is created as a matter of pruence.B. A provision is invested whereas reserve is not investedC. A provision is an appropriation of profit whereas a reserve is a charge against profit.D. A provision can be used for distribution of dividend whereas a reserve cannot be allowed to be used for distribution of dividend.
Answer» Correct Answer - a

Discussion

3.	Given two examples of Specific Reserves.
Answer» (i) Dividend Equalisation Reserve and (ii) Workmen Compensation Fund.

Discussion

4.	Is reserve a charge against profit or an appropriating of profit ?
Answer» It is created not b debiting to P & L A/c but through P & L Appropriation A/c. As such , it is appropriation of profit because it is created after the caculation of net profit.

Discussion

5.	Where will you transfer profit on sale of a fixed asset ?
Answer» Profit on sale of a fixed asset is a capital profit and, therefore it will be transferred to Capital Reserve.

Discussion

6.	Which of the following is a correct distinction between a Revenue reserve iand a Capital reserve ?A. A revenue reserve is created out of capital profits whereas a capital reserve is created out of business profits.B. A revenue reserve can be used for distribution of dividend with certain preconditions whereas a capital reserve can be used for distribution of dividend without any preconditionsC. A revenue reserve is created for strengthening the financial position whereas capital reserve is created for meeting capital losses or to be used for purposes specified by the Companies Act.D. There is no distinction between revenue reserve and capital reserve.
Answer» Correct Answer - c

Discussion

7.	Reserves arising from capital receipts are known asA. Capital Reserve.B. Reserve Fund.C. Any of (a) and (b)D. None of these.
Answer» Correct Answer - A

Discussion

8.	If the amount of any known liability cannot be determined accurately.A. Provision should be createdB. Definite liability should be createdC. Reserve should be createdD. Should be shown as a contingent liability
Answer» Correct Answer - a

Discussion

9.	Capital reserves are normally created out of free or distributable profits.
Answer» Correct Answer - False

Discussion

10.	…………… are created out of capital gains.
Answer» Correct Answer - Capital Reserve

Discussion

11.	Which of the following statements are correct about a "Provitions " ? (i) Provisions are a charge against the profits of and enterpise (ii) Provisions are created out of divisible profits (iii) Creation of provisions are not necessary for a business (iv) Provisions are created to meet a known liabilityA. (i), (ii) and (iii)B. (ii) and (iv) onlyC. (i), (iii) and (iv)D. (i) and (iv) only
Answer» Correct Answer - d

Discussion

12.	Profit on sale of fixed asset is used to createA. Specific Reserve.B. General Reserve.C. Capital Reserve.D. None of these.
Answer» Correct Answer - C

Discussion

13.	Provisions areA. external transactions.B. internal transactions.C. Can be (a) or (b)D. None of these.
Answer» Correct Answer - B

Discussion

14.	…………………are created for specific purpose.
Answer» Correct Answer - Specific Reserve

Discussion

15.	If the amount of any known liability can be determined with accuracyA. liability should be provided.B. a provision should be made.C. a reserve should be set aside.D. None of these.
Answer» Correct Answer - A

Discussion

16.	If the amount of any known liability cannot be determined with accuracyA. a liability should be provided.B. a provision should be made.C. a reserve should be set aside.D. None of these.
Answer» Correct Answer - B

Discussion

17.	Provision is aA. Specific Reserve.B. General Reserve.C. Capital Reserve.D. None of these.
Answer» Correct Answer - D

Discussion

18.	A Provision isA. an appropriation of profits.B. a charge against profit.C. Can be (a) or (b)D. None of these.
Answer» Correct Answer - B

Discussion

19.	Creation of reserves reduces taxable profits of the business.
Answer» Correct Answer - False

Discussion

20.	Which of the following statements is not appropriate in relation to "Provision"?A. Provisiion is a charged against profitB. Provision is created for known liabilityC. Provision is created for strengthening the financial position of the business.D. Creation of provision satisfies the principle of conservatism.
Answer» Correct Answer - c

Discussion

21.	General reserve can be used only for some specific puposes.
Answer» Correct Answer - False

Discussion

22.	Creation of reserves is discretionery.
Answer» Correct Answer - True

Discussion

23.	Eicher Ltd. intentionally made excess provision for doubtful debts. What term will be used for excess provision ?
Answer» Correct Answer - Reserve.

Discussion

24.	Usually, capital reserves are not available for distribution as each dividends.
Answer» Correct Answer - True

Discussion

25.	Dividend equalisation reserve is an example of general reserve.
Answer» Correct Answer - False

Discussion

26.	Name the reserve that can be used in distribution of dividend.
Answer» Correct Answer - Revenue Reserve.

Discussion

27.	Reserve created for maintaining a stable rate of dividend is treated as secret reserve.
Answer» Correct Answer - False

Discussion

28.	Differentiate between reserve and provision on the basis of charge or appropriation.
Answer» Reserve is an appropriation of profit whereas provision is charge against profit.

Discussion

Explore topic-wise InterviewSolutions in .

Making excessive provision for doubtful debts builds up the secret reserves in the business.

Given two examples of Specific Reserves.

Is reserve a charge against profit or an appropriating of profit ?

Where will you transfer profit on sale of a fixed asset ?

Reserves arising from capital receipts are known asA. Capital Reserve.B. Reserve Fund.C. Any of (a) and (b)D. None of these.

If the amount of any known liability cannot be determined accurately.A. Provision should be createdB. Definite liability should be createdC. Reserve should be createdD. Should be shown as a contingent liability

Capital reserves are normally created out of free or distributable profits.

…………… are created out of capital gains.

Profit on sale of fixed asset is used to createA. Specific Reserve.B. General Reserve.C. Capital Reserve.D. None of these.

Provisions areA. external transactions.B. internal transactions.C. Can be (a) or (b)D. None of these.

…………………are created for specific purpose.

If the amount of any known liability can be determined with accuracyA. liability should be provided.B. a provision should be made.C. a reserve should be set aside.D. None of these.

If the amount of any known liability cannot be determined with accuracyA. a liability should be provided.B. a provision should be made.C. a reserve should be set aside.D. None of these.

Provision is aA. Specific Reserve.B. General Reserve.C. Capital Reserve.D. None of these.

A Provision isA. an appropriation of profits.B. a charge against profit.C. Can be (a) or (b)D. None of these.

Creation of reserves reduces taxable profits of the business.

General reserve can be used only for some specific puposes.

Creation of reserves is discretionery.

Eicher Ltd. intentionally made excess provision for doubtful debts. What term will be used for excess provision ?

Usually, capital reserves are not available for distribution as each dividends.

Dividend equalisation reserve is an example of general reserve.

Name the reserve that can be used in distribution of dividend.

Reserve created for maintaining a stable rate of dividend is treated as secret reserve.

Differentiate between reserve and provision on the basis of charge or appropriation.