Differentiate between Provisions and Reserves on basic nature, purpose and use for payment of dividend.

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Solution

Dear Student

Basis Provision Reserves

1. Nature It is the charge against profit It is an appropriation of profit

2.Purpose It is maintained to meet the known liabilities It is created for strengthening the financial position and to meet unforeseen liabilities

3. Distribution as dividend It cannot be used for distribution as dividend. It can be distributed as dividend.

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Basis	Provision	Reserves
1. Nature	It is the charge against profit	It is an appropriation of profit
2.Purpose	It is maintained to meet the known liabilities	It is created for strengthening the financial position and to meet unforeseen liabilities
3. Distribution as dividend	It cannot be used for distribution as dividend.	It can be distributed as dividend.