Secret reserves are created by means of:
Secret reserves are created by means of:
The correct option is B Providing excessive depreciation
SECRET
RESERVES :-
"A reserve which is not visible on the balance sheet is
called secret reserves."
It is a surplus concealed. In case of a secret reserve
existence the actual financial position of the business is better than shown in
the balance sheet. In case of bank, insurance companies and financial
institutions secret reserves are justified.
CREATION OF SECRET RESERVES :-
Secret reserves may be created in the following ways :
1. High Value Of Goodwill :-
In the balance sheet if value of good will is shown nominal
or how but in fact its value is high reserve may be created.
2. Shown More Bad Debts :-
If management has made excessive provisions for bad debts. In
fact these are less than the reserves allocated. So keeping in view the
difference secret reserves can be created.
3. Shown More Depreciation :-
By providing too much depreciation on fixed assets,
management creates secret reserves.
4. More Liabilities Shown :-
By over valuing the liabilities, management may create the
secret reserves. Due to this profits reduce.
5. Low Value Of Fixed Assets :-
In the balance sheet the value of fixed asset is shown very
low real value is very high. In this situation secret reserves may be created.
6. Under Value Of Current Assets :-
Management shows less value of current asset in the balance
sheet actual value of the current asset is greater. So the secret reserves may
be created.
7. Contingent Liabilities As Red Liabilities :-
To create secret reserves management show the contingent
liabilities as real liabilities in the balance sheet. So profits and reserves
may be reduced equal to the secret reserves.
8. Fictitious Liabilities Shown :-
To create the secret reserves management shows the fictitious
as actual liabilities.
9. Capital Expenditure To Revenue :-
Sometimes to create the secret reserves management charges
the capital expenditure to revenue. The profit is reduced.
10. By Omitting :-
Sometimes management omits some assets from the balance sheet
and in this way it creates the secret reserves.
SECRET
RESERVES :-
"A reserve which is not visible on the balance sheet is
called secret reserves."
It is a surplus concealed. In case of a secret reserve
existence the actual financial position of the business is better than shown in
the balance sheet. In case of bank, insurance companies and financial
institutions secret reserves are justified.
CREATION OF SECRET RESERVES :-
Secret reserves may be created in the following ways :
1. High Value Of Goodwill :-
In the balance sheet if value of good will is shown nominal
or how but in fact its value is high reserve may be created.
2. Shown More Bad Debts :-
If management has made excessive provisions for bad debts. In
fact these are less than the reserves allocated. So keeping in view the
difference secret reserves can be created.
3. Shown More Depreciation :-
By providing too much depreciation on fixed assets,
management creates secret reserves.
4. More Liabilities Shown :-
By over valuing the liabilities, management may create the
secret reserves. Due to this profits reduce.
5. Low Value Of Fixed Assets :-
In the balance sheet the value of fixed asset is shown very
low real value is very high. In this situation secret reserves may be created.
6. Under Value Of Current Assets :-
Management shows less value of current asset in the balance
sheet actual value of the current asset is greater. So the secret reserves may
be created.
7. Contingent Liabilities As Red Liabilities :-
To create secret reserves management show the contingent
liabilities as real liabilities in the balance sheet. So profits and reserves
may be reduced equal to the secret reserves.
8. Fictitious Liabilities Shown :-
To create the secret reserves management shows the fictitious
as actual liabilities.
9. Capital Expenditure To Revenue :-
Sometimes to create the secret reserves management charges
the capital expenditure to revenue. The profit is reduced.
10. By Omitting :-
Sometimes management omits some assets from the balance sheet
and in this way it creates the secret reserves.
