“Provision is a must and reserve is an option.” – Elucidate.

1.	“Provision is a must and reserve is an option.” – Elucidate.
Answer» A provision is created for meeting some expected contingency and can only be utilized for the purpose for which it is meant. Thus provision are the amounts set aside out of profit’s to provide for: 1. Depreciation, renewals or decrease in the value of fixed assets and 2. Any known liability of which the amount cannot be determined with substantial accuracy. A reserve is meant for meeting an unanticipated situation and can also be used in the payment of any future liability or loss. It is an appropriation from profit, which are not earmarked in any way to meet any liability. Thus, provision is a must and reserve is an option.

Answer»

A provision is created for meeting some expected contingency and can only be utilized for the purpose for which it is meant.

Thus provision are the amounts set aside out of profit’s to provide for:

1. Depreciation, renewals or decrease in the value of fixed assets and

2. Any known liability of which the amount cannot be determined with substantial accuracy.

A reserve is meant for meeting an unanticipated situation and can also be used in the payment of any future liability or loss. It is an appropriation from profit, which are not earmarked in any way to meet any liability. Thus, provision is a must and reserve is an option.

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