Ch. No. 12 – Provision and Reserves – Unimax Class 11

In this article, we have provided the Question wise solution to all Questions of Chapter No. 12 – Provision and Reserves – Unimax Publications Class 11 – 2021, But first of all, we have explained the meaning of Provisions and Reserves: –

What is Provision in accounting

The provision in accounting means that amount is charged against the Profit or loss account(Income statement) for some uncertain amount of known liability which will be incurred in the near future.

To calculate the true profit or loss of the business for the current year, we have to charge the unknown amount of known expenses or liabilities which are related to current year operating activities to the profit/loss account on a proportionate basis by making provision for this amount at the time of preparing financial statements.

For example, We have always some sort of debtors that will not pay our dues, So a provision for doubtful debts is created to charge that amount of loss to the Profit/loss account (income statement).

“According To Part III, Schedule VI of the Companies Act, 1956,

The expression ‘provision’ shall mean (i) any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or (ii) retained by way of providing for known liability or which the amount cannot be determined with substantial accuracy. “

What is Reserve:-

A reserve refers to the proportionate amount of net profit or surpluses which is retained for future payments. In other words, the retention of the profit is not for any known liability.

According to William Pickles. “Reserve means the amount set aside out of profit and other surpluses, which are not earmarked in any way to meet any particular liability known to exist on the date of Balance Sheet.”

“According To Part III, Schedule VI of the Companies Act, 1956,

The expression ‘reserves’ shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for known liability. However, if the amount of provision is in excess of the amount which in the opinion of the directors is reasonably necessary for the purpose, the excess shall be treated as a reserve and not as a provision.”

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For more Explanation please check out the following link: –

Read out the full article

The provision in accounting: Types and Treatment

Reserve: Meaning, type, Accounting treatment

Also, Check out the same article in Hindi from the following link

The provision in accounting: Types and Treatment – in Hindi

Reserve: Meaning, type, Accounting treatment – in Hindi