2025 · Q80
In accounting context, which one of the following statements is correct?
General Accounting Principles, Auditing and InsuranceFinal accounts
- AReserve created is a charge against profits.
- BCapital reserves are normally created out of distributable profits.
- CGeneral reserve can be used only for some specific purposes.
- D'Provision' is a charge against profit.
Explanation
A provision is a charge against profit because it is created by debiting the profit and loss account even if there are no profits. Reserves are appropriations of profit, not charges; capital reserves arise from capital (not distributable) profits; and a general reserve can be used for any purpose, not only specific ones.