Question

Which of the following is not a feature of reserve?

• A. It is an appropriation of profit
• B. It strengthens the financial position of the firm
• C. It has no effect on taxable profits
• D. It cannot be used for dividend distribution

Answer 1

Answer:

D. It cannot be used for dividend distribution

Reserves are created out of profits to strengthen the financial position of the firm. They are an appropriation of profit, do not reduce taxable profit, and can generally be used to pay dividends if needed. Option (d) is incorrect, because reserves can be used for dividend distribution unless restricted (like specific reserves with a designated purpose).