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Question
Assertion (A): Reserves are created to strengthen the financial position of the company.
Reason (R): Provision is created to provide for any known liability whose amount as yet is uncertain.
In the context of the above two statements, which of the following is correct?
Options
(A) and (R) both are correct and (R) correctly explains (A).
Both (A) and (R) are correct but (R) does not explain (A).
Both (A) and (R) are incorrect.
(A) is correct but (R) is incorrect.
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Solution
Both (A) and (R) are correct but (R) does not explain (A).
Explanation:
Reserves are created to strengthen the financial position of a company, they represent accumulated profits set aside for future use or contingencies. On the other hand, provisions are created to meet known liabilities or losses, the amount of which is uncertain at the time of creation.
