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.
State whether the following statements are true or false:
State briefly the need for providing depreciation.
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
Give four examples each of ‘provision’ and ‘reserves’.
What are the effects of depreciation on profit and loss account and balance sheet?
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.
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.
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:
Distinguish between ‘general reserve’ and ‘specific reserve’.
Name any two types of commonly used negotiable instruments.
Why is it necessary to record the adjusting entries in the preparation of final accounts?
State the meaning of incomplete records?
Briefly state how the cash book is both journal and a ledger.
State the meaning of a trial balance?
State the four basic requirements of a database applications.
Define accounting.
State the different elements of a computer system.
Why is it necessary for accountants to assume that business entity will remain a going concern?
State the need for the preparation of bank reconciliation statement?
What is meant by closing stock? Show its treatment in final accounts?
Complete the following sentences with appropriate words:
(a) Information in financial reports is based on .....................
(b) Internal users are the ..................... of the business entity.
(c) A ..................... would most likely use an entities financial report to determine whether or not the business entity is eligible for a loan.
(d) The Internet has assisted in decreasing the ..................... in issuing financial reports to users.
(e) ..................... users are groups outside the business entity, who uses the information to make decisions about the business entity.
(f) Information is said to be relevent if it is ......................
(g) The process of accounting starts with ............ and ends with ............
(h) Accounting measures the business transactions in terms of ............ units.
(i) Identified and measured economic events should be recording in ............ order.
What kinds of errors would cause differences in the trial balance. Also list examples that would not be revealed by a trial balance?
Use of common unit of measurement and common format of reporting promotes;
a. Comparability
b. Understandability
c. Relevance
d. Reliability
Which is the last step of accounting as a process of information?
a. Recording of data in the books of accounts
b. Preparation of summaries in the form of financial statements
c. Communication of information
d. Analysis and interpretation of information
Briefly explain the statement ‘wrongly debited by the bank’ with the help of an example.
Deepti wants to buy a building for her business today. Which of the following is the relevant data for his decision?
a. Similar business acquired the required building in 2000 for ₹ 10,00,000
b. Building cost details of 2003
c. Building cost details of 1998
d. Similar building cost in August, 2005 ₹ 25,00,000
Why is it necessary for accountants to assume that business entity will remain a going concern?
Name three components of a Transaction Processing System.
Why are the rules of debit and credit same for both liability and capital?