How secret reserve can be createda) All of theseb) By charging capital expenditure to revenuec) Under valuating stockd) By making excessive provisions
Question
How secret reserve can be createda) All of theseb) By charging capital expenditure to revenuec) Under valuating stockd) By making excessive provisions
Solution
A secret reserve can be created in several ways:
a) All of these: This option suggests that all the methods listed can be used to create a secret reserve.
b) By charging capital expenditure to revenue: This involves treating a capital expenditure (a long-term investment) as a revenue expenditure (a short-term cost). This reduces the reported profits, creating a secret reserve.
c) Under valuating stock: This involves reporting the value of stock at less than its actual value. This also reduces the reported profits, creating a secret reserve.
d) By making excessive provisions: This involves setting aside more money than necessary for potential future costs. This reduces the reported profits, creating a secret reserve.
So, all of these methods (b, c, and d) can be used to create a secret reserve, making option a) the correct answer.
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