Question

Reserve created by undervaluation of closing stock is called:

• A. Secret Reserve
• B. General Reserve
• C. Specific Reserve
• D. Capital Reserve

Answer 1

Answer:

A. Secret Reserve

Secret Reserve: A reserve not shown in the balance sheet, created by understating assets or overstating liabilities. Undervaluation of closing stock reduces reported profit, effectively creating a hidden reserve. Purpose: Provides a financial cushion for future losses or contingencies.