Which of the following statement is NOT TRUE in regard to reserve and provision?
Provision reduces taxable profit whereas reserves increase taxable profit.
The correct answer is option 2. Provision reduces taxable profit because it is considered as an expense that has already been accounted for, while reserves increase taxable profit as it is appropriated from profits but not deducted as an expense. Provision is a charge against profit, and reserves are appropriations of profits that are not meant for any immediate liability but are set aside for future uses.
Important Questions from Depreciation, Reserve & Provision
Which of the following statement is FALSE in relation to the term depreciation?
________ refers to writing off the cost of intangible assets like patents, copyrights, trademarks, franchises, and goodwill which have utility for a specified period of time.
Which of the following statement is FALSE?
Provision is _______ against profit.
Match the following.
I. Depreciation
II. Unexpired expenses
III. Interest on capital
IV. Manager’s commission
1. Shown on assets side
2. Shown on debited side
3. Deducted from values of assets
4. Shown as addition to capital
