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WAEC Financial Accounting 2017 Question 49

Question 49

Company Accounts

A reserve is an amount

  1. A.set aside from profit for an unknown liability.
  2. B.of loss from trading activities.
  3. C.of profit from trading activities.
  4. D.set aside from profit for specific purpose.
Show the answer and explanation

Answer: A (set aside from profit for an unknown liability.)

Explanation

In the WAEC syllabus a reserve is profit kept back in the business and not meant to meet any known liability; an amount set aside for a specific known liability or loss is a provision.