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Question
Which of the following reserve does not appear in the balance sheet of a company?
Which of the following reserve does not appear in the balance sheet of a company?
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Solution
The correct option is D Secret reserve
Secret reserves are created by the companies to strengthen the financial position of the company without disclosing in books of account. This reserve is a hidden reserve and not shown in the balance sheet. It is created by showing the lesser net profit than the actual.
The secret reserve can be created by the following ways:1) By charging excess rates of depreciation 2) By undervaluing the current assets.3) By overvaluing the current liabilities.4) By not recording of any assets at all.5) By showing contingent liability as actual liability.
Secret reserves are created by the companies to strengthen the financial position of the company without disclosing in books of account. This reserve is a hidden reserve and not shown in the balance sheet. It is created by showing the lesser net profit than the actual.
The secret reserve can be created by the following ways:
1) By charging excess rates of depreciation
2) By undervaluing the current assets.
3) By overvaluing the current liabilities.
4) By not recording of any assets at all.
5) By showing contingent liability as actual liability.
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