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Doubt

M.PORNIMA (Coimbatore) (278 Points)

07 December 2009

What is the differences between provisoins,reserves & fund?

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8 Replies

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 07 December 2009

Reserves are difference between assets and liabilities - more assets and less liabilities. They get created in many ways. All too commonly, when funds are received by way of grants or subsidies they appear in the form of reserves on the balance sheet. In jurisdictions where shares have fixed denominations, when shares are issued at premium, the excess amount so collected gets reflected in share premium reserve. At times P&L account is charged to create reserves. Usually such reserves are for some specific purpose (debenture redemtion reserve, for example) and therefore are not considered "free reserve".

Provision is created by charging on P&L account for meeting a specific purpose which is due to be met shortly and relates to the year for which P&L was prepared. A common example is provision for taxation.

Fund" term commonly used in some countries instead of "Retained profit"

regards,

ratan

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Desperado (Cost And Management Accountant) (129 Points)
Replied 07 December 2009

Dear,

A provision is an unanticipated liablity or loss, which is charged against profits,
The actual liablity is uncertain unless there is a reasonable accuracy with regards to that item,
Example includes,
Provision for Taxations.( Liablity remains uncertain untill end of the period)
Provision for doubtful debts.(sometime further provision is required to be provided at the end while some time already provided provision proves more than sufficient)
provision for depreciation( Asset is subject to obsolesce, or any contingency may arise which results change in allowances)

Reserve is an amount of profit set aside untill it is needed for some particular purpose, a reserve may be created for Contingencies, Plant, Building or any unavoidable contingent loss.

Fund is a cash or cash equivalent, cash(Fund) may be invested in assets which could generate some profits i.e. securities,which could easily be converted into cash.or
Funds may be cash or asset which is sets aside to attain specific objective.

Provisions and Reserves do not require cash and its equivalent to be set aside while funds require cash to be reserved.

Best Regards,

Kamal Jain (FCA) (200 Points)
Replied 07 December 2009

Below note shcedule VI defined all the three terms categorically

The word ‘fund’ in relation to any “Reserve” should be used only where such Reserve is specifically represented by earmarked investments.

· " Reserve” shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability.

Provision is amount written off or retained by way of providing for depreciation, tax etc, i.e.charged to profit and loss account

Reserve is not a charge to profit and loss account but is created by way of receipt of money or otherwise, like share premium, revaluation reserve and general reserve etc.

The word ‘fund’ in relation to any “Reserve” should be used only where such Reserve is specifically represented by earmarked investments.

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 07 December 2009

Originally posted by :Kamal Jain
"	Below note shcedule VI defined all the three terms categorically The word ‘fund’ in relation to any “Reserve” should be used only where such Reserve is specifically represented by earmarked investments. · " Reserve” shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability. Provision is amount written off or retained by way of providing for depreciation, tax etc, i.e.charged to profit and loss account Reserve is not a charge to profit and loss account but is created by way of receipt of money or otherwise, like share premium, revaluation reserve and general reserve etc. The word ‘fund’ in relation to any “Reserve” should be used only where such Reserve is specifically represented by earmarked investments.	"

well explained as in schedule vi

UMESH SINGHAL (Article CA FINAL) (32 Points)
Replied 07 December 2009

Provisions There is requirement of AS-4 to create Provisions of expected liablities & Losses on Balance Sheet date eg Provision for bad debts, stock etc

Reserve These Are Created Because Of Cmpanies act Requirment , A certain % of profits have to transferred to reserves like general reserve, Further According To AS - 10 we have to recognise capital reserve on profit on sale of Undepreciable Asset Like Land. Securities Premium Also Considered as reserve bec we cant transfer it to p&l a/c due to sec 78 of companies act 1956 .Further AS 10 SAYS that when we increase the value of fa we have to create a reserve called revaluation reserve

Fund This word shows the Liablity of company like staff welfare fund , staff insaurance fund

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Desperado (Cost And Management Accountant) (129 Points)
Replied 07 December 2009

Originally posted by :sivaram
"	Originally posted by :Kamal Jain " Below note shcedule VI defined all the three terms categorically The word ‘fund’ in relation to any “Reserve” should be used only where such Reserve is specifically represented by earmarked investments. · " Reserve” shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability. Provision is amount written off or retained by way of providing for depreciation, tax etc, i.e.charged to profit and loss account Reserve is not a charge to profit and loss account but is created by way of receipt of money or otherwise, like share premium, revaluation reserve and general reserve etc. The word ‘fund’ in relation to any “Reserve” should be used only where such Reserve is specifically represented by earmarked investments. " well explained as in schedule vi	"

Shivaram, Glad to know that you are evaluator over the forum, however, it would have been better, had you explained your views about the concerned topic to add values for the readers.

Regards,