The Difference Between Provisions and Reserves Can Best Be Characterized

question 39

Multiple Choice

The difference between provisions and reserves can best be characterized as:

• A) Provisions are liabilities recognized by charges against profit whereas a reserve is an element of shareholders' equity
• B) Provisions are an element of shareholders' equity whereas a reserve is a liability recognized by charges against profit
• C) Provisions reduce assets to net realizable value whereas reserves are liabilities recognized by charges against profit
• D) Reserves always reduce profits

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Definitions:

Redeemed

The process of paying off or buying back something, often referring to repaying the principal amount of bonds or preferred stocks.

Product Warranty

A product warranty is a promise made by a seller to a buyer to repair or replace a product within a specified period if it fails to meet the terms of the warranty.

Warranty Repairs

Services provided to fix defects in goods sold within a specified period, at no cost to the customer, under the terms of a warranty agreement.

Adjusting Entry

An accounting entry made at the end of an accounting period to allocate income and expenditure to the correct period.