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Auditing: Principles and Techniques by S. K. Basu

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Chapter 8

Reserves and Provisions

CHAPTER OUTLINE
8.1 CONCEPT OF RESERVES

Reserves are amounts appropriated out of profits, which are not intended to meet any liability, contingency, commitment or diminution in the value of assets known to exist at the date of the balance sheet.

According to American Institute of Accountants, “the use of the term reserve is limited to indicate that an undivided portion of the asset is being held or retained for general or specific purposes”.

8.2 CONCEPT OF PROVISIONS

Provisions are amounts charged against revenue to provide for the following:

  1. Depreciation, renewals or diminution ...

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