Which of the following statement is NOT TRUE in regard to reserve and
Right Answer is: B
True statements about reserves & surplus are:
• A provision is a charge against profit whereas reserve is an appropriation of profit.
• Provision reduces taxable profit whereas reserves cannot increase or decrease taxable liabilities as these are the appropriation of profit after tax.
• Provision cannot be used for distribution as dividend whereas reserve can be used for dividend distribution.
• Provision is made for a known liability or expense pertaining to the current accounting period whereas the reserve is created for strengthening the financial position of the business.