BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A charge of estimated expenses
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An appropriation of profit for a specific purpose
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The distribution of profits to shareholders
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The amount of net income left over for the business after it has paid out dividends to its shareholders.
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Detailed explanation-1: -What is a Reserve? A reserve is an appropriation of profits for a specific purpose. The most common reserve is a capital reserve, where funds are set aside to purchase fixed assets. By setting aside a reserve, the board of directors is segregating funds from the general operating usage of the company.
Detailed explanation-2: -Basic nature : A provision is a charge against profit whereas reserve is an appropriation of profit. Hence, net profit cannot be calculated unless all provisions have been debited to profit and loss account, while a reserve is created after the calculation of net profit.
Detailed explanation-3: -Specific reserves in accounting refers to the reserves that are created for a specific purpose in business. These reserves cannot be used for any other purpose apart from the purpose for which they were created.
Detailed explanation-4: -Appropriation. Charge against profit means the deduction of any amount from the firm’s revenue to reach Net Profit or Loss. Appropriation of Profit is the distribution of Profit. Hence, the Profit and Loss Account is prepared. Hence, the Profit and Loss Appropriation Account is prepared.
Detailed explanation-5: -General Reserve is part of the profit and loss appropriation account. General Reserve is the amount kept aside from the company’s profit during its normal operation to meet future needs.