Practice Provisions Vs Reserves (18.8) - Depreciation Accounting - Management 1 (Organizational Behaviour/Finance & Accounting)

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6 sample questions

Question 1.
What is a provision?
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Think of it as preparation for future costs.
Question 2.
Do reserves affect net profit?
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Consider the difference between expenses and appropriations.
3Question 3.
What is a provision?
- An expense account
- An appropriation of profits
- A mandatory amount set aside for liabilities
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Think about preparation for expenses.
4Question 4.
Are reserves mandatory in accounting?
- True
- False
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Consider whether companies must legally set aside these funds.
Question 5.
A company has a net income of $150,000. If it decides to set aside $30,000 for potential warranty claims, what will be the new net income?
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Subtract the provision amount from net income.
Question 6.
Discuss a scenario where failing to set a provision could lead to financial misrepresentation.
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Consider regulations and the impact on stakeholder confidence.

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