Which one of the following statements is correct ........

General Accounting Principles Others

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Which one of the following statements is correct?

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EPFO APFC 2023

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Capital reserves are normally created out of free or distributable profits.

Dividend equalization reserve is an example of general reserve.

General reserve can be used only for some specific purposes.

'Provision' is a charge against profit.

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Explanation:

- Option 1: Capital reserves are not created out of free or distributable profits; they typically arise from non-operational activities like asset revaluation or share premium.

- Option 2: A dividend equalization reserve is specific to stabilizing dividend payouts, not a general reserve.

- Option 3: General reserves are not limited to specific purposes; they can be used freely in the business as deemed appropriate by management.

- Option 4: A 'provision' is indeed a charge against profit, as it accounts for anticipated liabilities or asset devaluations and is deducted before arriving at net profit.