General Reserves | The purpose for such reserves are created is not specified. |
It is also termed as free reserve because the management can freely utilise it for any purpose. | |
General reserve strengthens the financial position of the business. | |
Specific reserve | Specific reserve is the reserve, which is created for some specific purpose and can be utilised only for that purpose |
Dividend equalisation reserve– is created to stabilise or maintain dividend rate. In the year of high profit, amount is transferred to Dividend Equalisation reserve. In the year of low profit, this reserve amount is used to maintain the rate of dividend | |
Workmen compensation fund- is created to provide for claims of the workers due to accident, etc. | |
Investment fluctuation fund– is created to make for decline in the value of investment due to market fluctuations | |
Debenture redemption reserve-is created to provide funds for redemption of debentures | |
Revenue reserves | Created from revenue profits which arise out of the normal operating activities of the business and are otherwise freely available for distribution as dividend. |
Created to strengthen the financial position, to meet unforeseen contingencies or for some specific purposes. | |
Capital reserves | are created out of capital profits which do not arise from the normal operating activities |
created for compliance of legal requirements or accounting practices | |
Such reserves are not available for distribution as dividend. | |
These reserves can be used for writing off capital losses or issue of bonus shares in case of a company |