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Difference between Provisions and reserves
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Answer Posted / subhash a.
Absolutely right my dear friend,
We need to explain the situation to the readers clearly that
when these both are created.
A provision is created when there is an approximately known
reduction (or loss) in value of assets, so that we can
report our assets in balance sheet truly.
(e.g. for reduction in value of assets - prov for
depreciation; the rates are specified in comapanies' act &
it act;
for loss in value of assets - prov for bad debts; management
will decide over the matter)
A reserve is created when we decided to appropriate our
earned profits for some specific purpose. Otherwise they
will remain in general reserve a/c.
Good luck friends.
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