Types of Reserves

Types of Reserves:-
Revenue Reserves are reserves built out of ordinary profits, profits which can be used for
declaring dividends. Examples are General Reserve and Dividend Equalisation Reserve (a
reserve to make dividends uniform from year to year).
 A Specific reserve is created for definite
purpose.
 A general reserve is created to make position better generally.
Capital Reserves are reserves built out of capital (or extraordinary) profits—profits not
available for dividends. Such profiles are :–
(a) Profit Prior to incorporation.
(b) Premium on issue of shares or debentures.
(c) Profit on redemption of debentures.
(d) Amount utilised out of profits to redeem redeemable preference shares.
(e) Profit on forfeiture of shares.
(f) Profit on sale or revaluation of fixed assets.
Capital profits may be used to issue bonus shares
Secret Reserves.
Reserves (accumulation of profits) which are not disclosed in accounts are
known as secret reserves. Secret reserves mean that the actual financial position is much better
than that show in the Balance Sheet. Such reserves are created by suppressing profits, like.
(a) writing off excessive depreciation;
(b) treating an asset as an expense (i.e., charging capital expenditure to revenue);
(c) under valuation of closing stock;
(d) suppression of sales; and
(e) crediting revenue receipts to an asset.

Secret reserves are the reverse of window dressing (which showing a better position that it
is).Both are against the provisions of the Companies act which require that the Balance Sheet and Profit and Loss Account should exhibit a true an fair position.

Statutory Reserves	Contingency Reserves
Securities Premium Reserve	Depreciation Reserve