Reserves and Provisions

Concept and objectives of maintaining general reserve and secret reserve, Specific reserves: sinking fund, research and development fund, Reserve for redemption of liabilities; Accounting treatment 

Notes

Reserves

Reserve fund is the part of the profit so if there is no profit then reserve fund cannot be created. Reserve fund is not distributed to the shareholder / owner.

Provisions

Provision indicates to any amount of anticipated losses or expenses of the business in the future due to current year’s activities. It is created for particular purpose by charging against the profit and loss account