GSEB Class 11 Accounts Important Questions Part 2 Chapter 3 Provisions and Reserves

Gujarat Board GSEB Class 11 Commerce Accounts Important Questions Part 2 Chapter 3 Provisions and Reserves  Important Questions and Answers.

GSEB Class 11 Accounts Important Questions Part 2 Chapter 3 Provisions and Reserves

Answer the following questions in one sentence :

Question 1.
What is reserve?
Answer:
An amount appropriated out of profit to increase financial soundness of the business or to meet with contingent loss or liability in future is called as Reserve.

Question 2.
What is meant by revenue reserve?
Answer:
Profit generated out of purchase and sale of goods and other regular activities of business is called as revenue profit. The reserve created out of such revenue profit is called as Revenue reserve.

Question 3.
What is called specific reserve?
Answer:
When a revenue reserve is created out of profit and loss appropriation account for specified purpose is known as Specific reserve.

Question 4.
Give four examples of specific reserve.
Answer:
Following are the four examples of specific reserve :

1. Dividend equalization fund,
2. Debenture redemption fund,
3. Investment fluctuation fund and
4. Sinking fund.

Question 5.
What is meant by capital reserve?
Answer:
The reserve which is created out of capital profit and cannot be used for distribution of dividend is known as Capital reserve.

Question 6.
For what purposes can capital reserve be used?
Answer:
Capital reserve can be used for the following purposes :

• To write off capital losses,
• To write off fictitious assets like discounts on issue of debenture, preliminary expenses, etc.
• To give bonus shares, if there is provision in Articles of Association of the company and
• To write off intangible assets like goodwill, copyright, etc.

Question 7.
What is sinking fund?
Answer:
The reserve which is created out of profit for the purpose of the payment of long term debt or regular payment of interest or purchase of fixed assets is called as Sinking fund.

Question 8.
State any two uses of sinking fund.
Answer:
Two uses of sinking fund are as follows :

1. Sinking fund for the payment of long term debt
2. Sinking fund for replacement of a fixed asset

Question 9.
Which reserve is not shown in the books?
Answer:
Secret reserve is not shown in the books.

Question 10.
What is meant by capital profit?
Answer:
The profit which is not derived from revenue income is called Capital profit.

Question 11.
Mention any three sources of capital reserve.
Answer:
Following are three sources of capital reserve :

1. Profit on sale of fixed assets and investments.
2. Premium received on issue of shares or debentures and
3. Balance of share for forfeiture account after reissue of shares forfeited by the company.

Question 12.
How is secret reserve created?
Answer:
A sceret reserve is created by understating the value of the asset or by overstating the liabilities in the books of accounts.

Question 13.
Mention the types of reserves.
Answer:
Following are the types of reserves :

1. Revenue reserve and
2. Capital reserve.

Question 14.
Mention the types of revenue reserve.
Answer:
Following are the types of revenue reserve :

• General reserve,
• Specific reserve and’
• Secret reserve.

Question 15.
What is reserve fund?
Answer:
When the amount of reserve is invested in securities outside the business then it is known as reserve fund.

Question 16.
From which account is a provision created?
Answer:
A provision is created from the profit and loss account.

Question 17.
From which account is a general reserve created?
Answer:
A general reserve is created from Profit and Loss Appropriation A/c.

Question 18.
Which reserve is created to meet unforeseen requirements?
Answer:
General reserve is created to meet unforeseen requirements.

Question 19.
What is provision?
Answer:
Provision means an amount appropriated from profit to honor probable liabilities which can be identified but the amount of which cannot be ascertained accurately.

Question 20.
How provision is different from liability?
Answer:
Amount of liability is fixed and it is sure to pay. While provision is an amount appropriated from profit for probable expenses or losses for which the amount cannot be ascertained accurately.

Question 21.
Which reserve is very useful to increase financial soundness of business?
Answer:
Revenue reserve is very useful to increase financial soundness of business.

Question 22.
Explain accounting entry for general reserve.
Answer:
Accounting entry:
Profit and Loss Appropriation A/c Dr To General reserve A/c

Question 23.
Which reserve is a helping hand for business in contingencies?
Answer:
General reserve is a helping hand for business in contingencies.

Question 24.
What is secret reserve also known as?
Answer:
Secret reserve is also known as internal reserve.

Answer the following questions in brief:

Question 1.
State the sources of capital reserve.
Answer:
Following are the sources of capital reserve :

• Profit on sale of fixed assets and investments.
• Profit on revaluation of fixed assets.
• Premium received by the company on issue of shares or debentures.
• Balance of share forfeiture account after reissue of shares forfeited by the company.
• Profit prior to incorporation of the company.
• Capital redemption reserve for redeeming preference shares.
• Profit on redemption of debentures at discount.

Question 2.
Give six examples of specific reserve.
Answer:
Following are the example of specific reserve:

• Dividend Equalization fund
• Debenture Redemption fund
• Investment Fluctuation fund
• Workers accident compensation fund
• Provision for Taxation, Gratuity and
• Bad debt reserve, Discount reserve on debtors.

Question 3.
Write short note on General reserve.
Answer:
Meaning: A reserve which is used for general purposes and not for specific purposes is called a general reserve. In short, General reserve is used to maintain the rate of dividend and to increase financial soundness of the business.
Explanation:

• General reserve is created without any specific purpose but to strengthen the financial position of the business.
• In order to create a General reserve, following accounting entry is passed :
  Profit and Loss Appropriation A/c Dr To General reserve A/c

Uses: General reserve can be used to meet with contingent expenses or losses, distribution of dividend, issue of bonus shares and for future growth of the business.

Question 4.
Write short note on Revenue reserve.
Answer:
Meaning: Profit generated out of purchase and sale of goods and other regular activities of business is called as revenue profit. The reserve created out of such revenue profit is called as Revenue reserve.
Uses: Revenue reserve is very useful to increase financial soundness of business. Moreover revenue reserve can also be used to pay contingent expenses or losses of the business.
Classification: Revenue reserve can be classified into three categories:

1. General reserve,
2. Specific reserve and
3. Secret reserve.

Question 5.
Distinguish between the General Reserve and Specific Reserve
Answer:

Points	General Reserve	Specific Reserve
1. Meaning	Reserve created not for any specific and earmarked purpose is known as general reserve.	Reserve created for some specific and earmarked purpose is known as specific reserve.
2. Purpose	General reserve is created to meet some future contingencies and for strengthening financial position of a business concern.	Specific reserve is created for some specific purpose.
3. Utilized	General reserve is utilized to meet any unknown liability.	Specific reserves can be utilized only for the purpose for which they were created.
4. Paying dividend	In case of need, general reserve can be utilized for paying dividend.	Usually, dividend cannot be paid out of the specific reserves.
5. Created from	General reserve is created out of profit and loss appropriation account.	Specific reserve is created out of profit and loss account.

Question 6.
State with reasons whether the following are reserves or provisions:
1. Provision for taxation
2. Sinking fund
3. Investment fluctuation fund
4. Dividend equilization fund
5. Employees’ Bonus fund
6. Reserve for repairs and renovation
7. Capital or Debenture redemption fund
Answer:
1. Provision for taxation: It is a provision because it is created from the profit and loss account.
2. Sinking fund: It is a provision because it is created from the profit and loss account.
3. Investment fluctuation fund: It is a provision because it is created from the profit and loss account.
4. Dividend equalization fund: It is a reserve because it is created from the profit and loss appropriation account.
5. Employees’ Bonus fund: It is a provision because it is created from the profit and loss account.
6. Reserve for repairs and renovation: It is a provision because it is created from profit and loss account.
6. Capital or Debenture redemption fund: Both are reserved because they are created from the profit and loss appropriation account.

Write the correct option from those given below each question:

Question 1.
Which reserve can be used to write off fictitious assets like goodwill, preliminary expenses, discount on share or debenture, etc.?
(a) Specific reserve
(b) Capital reserve
(c) Secret reserve
(d) None of these
Answer:
(b) Capital reserve

Question 2.
Which reserve is created from capital profit?
(a) General reserve
(b) Secret reserve
(c) Capital reserve
(d) Specific reserve
Answer:
(c) Capital reserve

Question 3.
Which reserve is not shown in Balance Sheet?
(a) General reserve
(b) Secret reserve
(c) Specific reserve
(d) Capital reserve
Answer:
(b) Secret reserve

Question 4.
Which type of reserve is created by making more provisions for liability?
(a) Specific reserve
(b) Secret reserve
(c) Capital reserve
(d) General reserve
Answer:
(b) Secret reserve

Question 5.
Which type of reserve is created by providing for more depreciation?
(a) General reserve
(b) Secret reserve
(c) Capital reserve
(d) Revenue reserve
Answer:
(b) Secret reserve

Question 6.
Which reserve is created from Profit and Loss Appropriation Account?
(a) General reserve
(b) Bad debts reserve
(c) Discount reserve on debtors
(d) Capital reserve
Answer:
(a) General reserve

Question 7.
Which reserve can be used for distribution of bonus shares?
(a) General reserve
(b) Secret reserve
(c) Specific reserve
(d) Provision
Answer:
(a) General reserve

Question 8.
Which reserve is created for paying specific liability of business?
(a) General reserve
(b) Secret reserve
(c) Specific reserve
(d) Capital reserve
Answer:
(c) Specific reserve

Question 9.
Profit prior to incorporation of the company is which type of reserve?
(a) General reserve
(b) Secret reserve
(c) Capital reserve
(d) Revenue reserve
Answer:
(c) Capital reserve

Question 10.
In which account, the amount of share premium is to be transferred?
(a) Capital reserve
(b) General reserve
(c) Sinking fund
(d) Secret reserve
Answer:
(a) Capital reserve

Question 11.
Which reserve cannot be used to pay dividend?
(a) General reserve
(b) Revenue reserve
(c) Capital reserve
(d) Secret reserve
Answer:
(c) Capital reserve

Question 12.
Out of the following which amount is reserve?
(a) Depreciation fund
(b) Sinking fund
(c) Investment fluctuation fund
(d) Dividend equalization fund
Answer:
(d) Dividend equalization fund

Question 13.
Out of the following which amount is provision?
(a) Debenture redemption fund
(b) Workers accident compensation fund
(c) Workers profit sharing fund
(d) Dividend equalization fund
Answer:
(c) Workers profit sharing fund

Question 14.
From which account-specific reserve is created?
(a) Trading A/c
(b) Profit and Loss A/c
(c) Profit and Loss Appropriation A/c
(d) Profit and Loss Adjustment A/c
Answer:
(c) Profit and Loss Appropriation A/c

Question 15.
From which account provision for taxation is created?
(a) Trading A/c
(b) Profit and Loss A/c
(c) Profit and Loss Appropriation A/c
(d) Profit and Loss Adjustment A/c
Answer:
(b) Profit and Loss A/c

Question 16.
Which type of reserve is created by undervaluing closing stock?
(a) Revenue reserve
(b) Capital reserve
(c) Specific reserve
(d) Secret reserve
Answer:
(d) Secret reserve

Question 17.
Out of the following, which is secret reserve?
(a) Dividend equalization fund
(b) Investment fluctuation fund
(c) By making more provisions for depreciation
(d) Sinking fund
Answer:
(c) By making more provisions for depreciation

Question 18.
Out of the following which is specific reserve?
(a) Reserve created by undervaluing closing stock
(b) Reserve created by showing more expenses
(c) Reserve created by making more provision for bad debt
(d) Reserve created for workers accident compensation
Answer:
(d) Reserve created for workers accident compensation

Question 19.
Profit on revaluation of fixed assets is which type of reserve?
(a) General reserve
(b) Revenue reserve
(c) Capital reserve
(d) Specific reserve
Answer:
(c) Capital reserve

Question 20.
Which reserve is a helping hand for business in contingencies?
(a) General reserve
(b) Secret reserve
(c) Specific reserve
(d) Capital reserve
Answer:
(a) General reserve

Question 21.
Which reserve is created to meet unexpected requirements?
(a) Specific reserve
(b) Secret reserve
(c) Capital reserve
(d) General reserve
Answer:
(d) General reserve

Question 22.
Which reserve has no specific purpose?
(a) Capital reserve
(b) Secret reserve
(c) General reserve
(d) Revenue reserve
Answer:
(c) General reserve

Question 23.
Which reserve is used for the same purpose for which it is created?
(a) Revenue reserve
(b) Capital reserve
(c) Specific reserve
(d) General reserve
Answer:
(c) Specific reserve

Question 24.
The balance of debenture redemption fund, is transferred to which reserve after redeeming debentures?
(a) General reserve
(b) Capital reserve
(c) Secret reserve
(d) Revenue reserve
Answer:
(a) General reserve

Question 25.
Secret reserve is also known as …………………………. .
(a) External reserve
(b) Internal reserve
(c) Hidden reserve
(d) Closed reserve
Answer:
(b) Internal reserve