12 April 2008
Reserves created for specific purpose can only be utilised for that purpose only. There are also some statutory reserves that is required to be created under the various statute. These reserves cannot be used for distrtibiution of dividend. Free reserves can be created from the surplus of profit like general reserve which can be used for declaration of dividend. This is just a brief idea about reserves. Regards Prasad.R
12 April 2008
STATUTORY RESERVES ARE CREATED AS PER STATUTES APPLIABLE AND ARE TO BE USED ONLY FOR THAT PARTICULAR PURPOSE FOR WHICH THEY ARE CREATED LIKE CAPITAL RESERVES CREATED ON FIXED ASSET REVALUATION AND CANNOT BE USED FOR DIVIDEND ETC... GENERAL RESERVES OR FREE RESERVES ARE CREATED OUT OF PROFITS AND CAN BE USED FOR DIVIDEND OR PROFITS NOT TRANSFERRED TO GEN. RESERVES CAN BE LEFT AS P&L SURPLUS. THE DIFFERENCE BETWEEN CAPITAL AND GEN. RESERVES IS THAT THE FREE OR GEN. RESERVES ADD UP TO NETWORTH OF THE COMPANY.CAPITAL RESERVES DONT SERVE THAT PURPOSE. BONUS SHARES CAN ALSO BE ISSUED OUT OF FREE RESERVES WHERE AS CAPITAL RESERVES DONT SERVE THAT PURPOSE. SHARE PREMIUM CAN ALSO BE USED FOR ISSUING BONUS SHARES . R.V.RAO
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