**Disadvantages of Secret Reserves**

Secret reserves refer to the undisclosed or hidden reserves that are intentionally created by a company to strengthen its financial position. While secret reserves may have certain advantages, such as providing a cushion for unexpected losses or enhancing the company's reputation, they also come with several disadvantages. The disadvantages of secret reserves are as follows:

**1. Unfair presentation of financial statements:**
- Secret reserves create a misleading and unfair presentation of a company's financial statements.
- By understating the true financial position of the company, secret reserves can mislead investors, creditors, and other stakeholders in their decision-making processes.
- It goes against the principle of transparency and may result in a loss of trust in the company and its management.

**2. Loss to shareholders:**
- Secret reserves can lead to a loss for the shareholders.
- By creating secret reserves, the company intentionally reduces the amount of profit that is available for distribution as dividends.
- Shareholders may not receive their fair share of profits, leading to a loss in their investment returns.

**3. Misuse by management:**
- Secret reserves can be misused by the management for personal gains or to manipulate financial results.
- Management may use secret reserves to smooth out earnings, artificially inflate profits, or create a false impression of financial stability.
- This misuse of secret reserves can lead to unethical practices and may result in legal consequences for the management.

**4. Lack of transparency and accountability:**
- Secret reserves undermine the principle of transparency and accountability in financial reporting.
- By intentionally keeping reserves hidden, the management fails to provide a true and fair view of the company's financial position.
- This lack of transparency can make it difficult for stakeholders to assess the company's actual financial health and make informed decisions.

**5. Difficulty in assessing risk and creditworthiness:**
- Secret reserves make it challenging for creditors and investors to accurately assess the risk and creditworthiness of a company.
- By understating their financial position, companies with secret reserves may appear less risky than they actually are.
- This can lead to misjudgments and incorrect investment or lending decisions, which can have negative consequences.

In conclusion, while secret reserves may provide certain advantages to a company, such as absorbing unforeseen losses, they also come with significant disadvantages. These disadvantages include unfair presentation of financial statements, loss to shareholders, potential misuse by management, lack of transparency and accountability, and difficulty in assessing risk and creditworthiness.

Pick odd one out a)drawings b) net asserts c)owners equity d) net worth