Explain the concept of ‘secret reserve’.

Explanation

A secret reserve is that the quantity by that the assets of a company ar unpretentious or its liabilities ar immoderate. Associate in Nursing entity would possibly establish a secret reserve for competitive reasons, to cover from alternative businesses that it's in an exceedingly higher monetary position than seems in its monetary statements. However, a secret reserve means the knowledge provided to shareholders is fake and deceptive.


There ar many ways in which to ascertain a secret reserve, like fast the depreciation of fastened assets, writing off assets entirely, undervaluing the value of pluss and by making overly massive reserves for varied liabilities or asset write-downs. A facet result of the key reserve idea is that each reported financial gain and assessable financial gain ar reduced.