Class 11 Accountancy Depreciation, Provisions and Reserves: NCERT Solutions for Question 5
Name and explain different types of reserves in detail.
Types of Reserves are as follows:-
1) Revenue Reserves:- These reserves come into existence out of profits which have been earned in the course of day-to-day business operations. Therefore, the revenue reserves represent undistributed profits and as such are available for the distribution of dividends.
Revenue reserves may be of the following two types:-
(A) General Reserve:- Usually, the businessmen do not withdraw the entire profits from the business but retain a part of it in the business to meet unforeseen future uncertainties.
(B) Specific Reserve:- Such a reserve is created for a specific purpose and can be utilised only for that purpose.
2) Capital Reserves:- In addition to the normal profits, capital profits are also earned in the business from many sources. The reserves created out of such capital profits are known as Capital Reserves. Such reserves generally, are not available for distribution as cash dividend among the shareholders of a Company. Profits received from the following sources are termed as Capital profits:-
(A) Profits on the sale of fixed assets.
(B) Profits on the revaluation of fixed assets and liabilities.
(C) Premiums received on issues of Shares or Debentures.
(D) Profit on redemption of Debentures.
(E) Profit from the reissue of forfeited shares.
(F) Profit prior to the incorporation of a Company.
(G) Profit on the purchase of a running business.
More Questions From Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves
- Q:-
State whether the following statements are true or false:
- Depreciation is a non-cash expense.
- Depreciation is also charged on current assets.
- Depreciation is decline in the market value of tangible fixed assets.
- The main cause of depreciation is wear and tear caused by its usage.
- Depreciation must be charged so as to ascertain true profit or loss of the business.
- Depletion term is used in case of intangible assets.
- Depreciation provides fund for replacement.
- When market value of an asset is higher than book value, depreciation is not charged.
- Depreciation is charged to reduce the value of asset to its market value.
- If adequate maintenance expenditure is incurred, depreciation need not be charged.
- Q:-
State briefly the need for providing depreciation.
- Q:-
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
- Q:-
Give four examples each of ‘provision’ and ‘reserves’.
- Q:-
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
- Q:-
What are the effects of depreciation on profit and loss account and balance sheet?
- Q:-
State with reasons whether the following statements are True or False ;
(i) Making excessive provision for doubtful debits builds up the secret reserve in the business.
(ii) Capital reserves are normally created out of free or distributable profits.
(iii) Dividend equalisation reserve is an example of general reserve.
(iv) General reserve can be used only for some specific purposes.
(v) ‘Provision’ is a charge against profit.
(vi) Reserves are created to meet future expenses or losses the amount of which is not certain.
(vii) Creation of reserve reduces taxable profits of the business. - Q:-
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.
- Q:-
Basaria Confectioner bought a cold storage plant on July 01, 2014 for ₹ 1,00,000. Compare the amount of depreciation charged for first three years using:
- Rate of depreciation @ 10% on original cost basis;
- Rate of depreciation @ on written down value basis;
- Also, plot the computed amount of depreciation on a graph.
- Q:-
Describe in detail two methods of recording depreciation. Also give the necessary journal entries.
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