Question

Question: Name and explain different types of reserves in details.

Answer 1

Answer : As we know that the purpose of creating a reserve is retention on profit of the business for a general or specific purpose. The following are the types of reserves as per their purpose creation.
(i) General Reserve : Sometimes the reserve is created without specifying the purpose, such reserve is called General reserve. It is also termed as free reserve because the management can freely utilize it for any purpose. General reserve strengthens the financial position of the business.
(ii) Specific Reserve : On the other hand, a reserve which is created for some specific purpose and can be utilized only for that purpose is called Specific reserve. Examples of specific reserves are given below.
(a) Dividend equalisation reserve
(b) Workmen compensation fund
(c) Investment fluctuation fund
(d) Debenture redemption reserve
Besides the above one, reserves are also classified as revenue and capital reserves according to the nature of the profit out of which they are created