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WHAT IS THE DIFFERENCE BITWEEN RESERVE & PROVISION?
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Answer / g.ravi
Provisions are those where the liability existance is
certain, but the amount of liability cannot be determined
with substantial accuracy.
In case of reserves, the liability is not known. but some
amount of profits are kept aside for meeting the
contingencies that might become actual liabilities.
| Is This Answer Correct ? | 29 Yes | 2 No |
Answer / shiju
The main difference is a provision always made for meeting
some specific contingencies,like provision for depreciation
etc.But reserves is a part of profit it setaside out of the
net profits earned,and it dont have any special purposes
usually.
But in some cases the there is a restriction regarding the
use of reserves.
| Is This Answer Correct ? | 18 Yes | 1 No |
Answer / imran khan
Provisions are those where the liability existance is
certain, but the amount of liability cannot be determined
with substantial accuracy.
In case of reserves, the liability is not known. but some
amount of profits are kept aside for meeting the
contingencies that might become actual liabilities.The main
difference is a provision always made for meeting
some specific contingencies,like provision for depreciation
etc.But reserves is a part of profit it setaside out of the
net profits earned,and it dont have any special purposes
usually.
But in some cases the there is a restriction regarding the
use of reserves.
| Is This Answer Correct ? | 6 Yes | 0 No |
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DHPL is a small sized firm manufacturing hand tools. It manufacturing plan is situated in Haryana. The company’s sales in the year ending on 31st March 2007 were Rs.1000 million (Rs.100 crore) on an asset base of Rs.650 million. The net profit of the company was Rs.76 million. The management of the company wants to improve profitability further. The required rate of return of the company is 14 percent. The company is currently considering an investment proposal. One is to expand its manufacturing capacity. The estimated cost of the new equipment is Rs.250 million. It is expected to have an economic life of 10 years. The accountant forecasts that net cash inflows would be Rs.45 million per annum for the first three years, Rs.68 million per annum from year four to year eight and for the remaining two years Rs.30million per annum. The plant can be sold for Rs.55 million at the end of its economic life. The company would need to raise debt to the extent of Rs.200 million. The company has the following options of borrowing Rs.200 million: a. The company can borrow funds from a nationalized bank at the interest rate of 14 percent for 10 years. It will be required to pay equal annual installment of interest and repayment of principal. b. A financial institution has offered to lend money to DHPL at 13.5 per annum but it needs to pay equated quarterly installment of interest and repayment of principal. Questions: 1. Should the company expand its capacity? Show the computation of NPV 2. What is the annual installment of bank loan? 3. Calculate the quarterly installments of the Financial Institution loan 4. Should the company borrow from the bank or from the financial institution?
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