Provisions and Reserves Quiz-1

What is the primary distinction between provisions and reserves?

• Provisions are for known losses, reserves for unknown losses

• Provisions are always tax-deductible, reserves are not

• Provisions are recorded as assets, reserves as liabilities

• Provisions are generic, reserves are specific

When are provisions generally tax-deductible?

• When the costs are incurred

• When they are set aside from profits

• When the company is profitable

• When they are recorded in the balance sheet

What is a general reserve primarily used for?

• To pay dividends to shareholders

• To improve financial health

• To record bad debts

• To cover specific liabilities

Which of the following is an example of a specific reserve?

• General reserve

• Capital redemption reserve

• Bad debt reserve

• Dividend equalisation reserve

What does a provision for taxation cover?

• Current year income tax payable

• Future tax liabilities

• Tax refunds

• Past tax obligations

How is a provision for debtor discounts created?

• By granting discounts to early payers

• By estimating future sales

• By increasing sales allowances

• By recording future income

What is the purpose of establishing depreciation provisions?

• To create reserves for future use

• To reduce tax liabilities

• To represent true asset value

• To increase profits

How are provisions recorded in financial statements?

• As equity

• As revenue

• As liabilities or reductions from assets

• As assets

Which statement is true about reserves?

• They can be used to pay dividends

• They are always specific

• They are created due to legal requirements

• They are deducted from the Profit and Loss account

What happens to reserves when a company is not profitable?

• They are increased

• They cannot be created

• They are created regardless of profitability

• They are decreased