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Class : 11
Unit : Account

Write any three differences between provision and reserve.

Ans : Following are the three differences between provision and reserve: Basis Reserves Provisions Relation with profit It is an appropriation of profit. It is charge to profit and loss account. Compulsion It can be created only when there is profit. It must be charged to profit and loss account before calculating net profit or loss Need It is created for unknown liabilities. It is created for meeting a definite liability. Investment Reserves reduce divisible profits and can be invested in outside securities. Provisions reduce the net profits and are not invested in outside securities.