Reserves

dissimilarity in the middle of Provisions And Reserves

1. It is created by debiting the profit and loss appropriation account.

Reserve

2. It is created to meet an unknown liability, or to strengthen the financial position of the enterprise or for equalization of dividends etc.

Reserve

3. A hold is created only when there is profit in the business.

4. It can be distributed among shareholders as dividend.

5. The hold is created without taking into notice the actual number required except in the case of redemption of debentures when a exact sum is set aside.

6. Creation of hold depends upon the financial course of the enterprise and discretion of its management.

7. It is ordinarily shown on the liability side of the balance sheet as it is not a exact reserve.

Provisions

1. It is created by debiting the profit and loss account.

2. It is created to meet a known liability or a exact contingency, e.g.. Provision for bad and doubtful debts, or provision for depreciation etc.

3. A provision is created irrespective of either there is profit or loss in the business.

4. It is not ready for distribution as dividend among shareholders.

5. A provision is made for a exact number and, therefore, a exact sum is set aside every year to meet the known contingency.

6. Production of a provision is a must to meet known liability or contingency.

7. The provision is generally shown on the assets side of the balance sheet.

Distinction in the middle of normal hold and exact reserve

General reserve

1. It is created for a exact purpose.

2. It is utilized for that exact purpose, for which it was created.

3. either profit or no profits, it must be created.

4. It is critical to create in order to ascertain profit.

5. It is shown on the debit side of profit and loss account.

6. Net profits are reduced because of it.

Specific Reserve

1. It is created not for any exact purpose but for meeting hereafter contingencies.

2. It can be utilized for meeting any hereafter loss.

3. It is created only when there are adequate profit.

4. They are created only when there are profits i.e. They depend upon profits.

5. It is shown on the debit side of profit and loss appropriation account.

6. Only distributable profits are reduced because of it.

Reserve Fund

Profit set aside and used in the enterprise is a reserve. But profit set aside and invested face the enterprise is a hold fund. Thus, the use of the term 'fund' indicates
investment of hold face the business.

Sinking Fund

A sinking fund is a fund built up by yearly contributions. The contributions are invested face the enterprise in readily realizable securities. Interest received on investments is reinvested in the same securities.

A sinking fund may be (i) for replacement of fixed assets or (ii) for the redemption of debentures or reimbursement of loan. A sinking fund for the replacement of a fixed asset is a provision. But a sinking fund for redemption of debentures or reimbursement of loan is an appropriation of profits. A sinking fund represents number invested face the business.

Distinction in the middle of hold fund and sinking fund

Reserve fund

1. Investments are not for exact period.

2. It is created always out of divisible profits.

3. Interest received on investments representing hold fund may not be re-invested.

Sinking fund

1. Investments are for a exact period.

2. It is not always out of divisible profit e.g. Sinking fund for replacement of asset is provision for depreciation, it must be created even if there are no profits.

3. In case of sinking fund, interest is always re-invested.

dissimilarity in the middle of Provisions And Reserves

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