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Which one of the following statements is correct?
Capital serves 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.
- Option 1: Capital reserves are not created out of free or distributable profits. They typically arise from capital receipts.
- Option 2: A dividend equalization reserve is not an example of a general reserve; it is specifically for maintaining dividend levels.
- Option 3: General reserves are not restricted to specific purposes; they can be used for any corporate purpose as deemed appropriate by the company.
- Option 4: 'Provision' is indeed a charge against profit as it represents amounts set aside to cover anticipated future liabilities or losses.
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