Pl vs general reserve

Dear Ankit,

actuall speaking, both the terms are classified under the category of free reserves. however, every company has to under the transfer to reserves rules, transfer a certain percentage of profits to the GR

Dear Ankita,

Under Companies Act, if in any FY, company wants to declare dividend but does not have sufficient profits during the current, it has to declare either out P&L Account or out of free reserves. If it wants to declare ourt of reserves, it has to adhere to Declaration of dividend out of Reserves Rules. Hence many companies usually keep as P&L Balance.

In order to by pass the Declaration of Dividend Rules at time of declaring the dividend.

According to companies act 1956 profit and loss anfd general reserve both are included in free reserve category, hence available for distribution of dividend. when a company declares dividend it has to transfer minimum certain percent of profit to general reserve, thus general reserve is created. company usually prefer to have P&L instead of GR because in case of insufficiency of proft if it declares dividend from reserve,then company has to follow  Declaration of dividend out of Reserves Rules,1975, which limits the dividend to 10%. but if company has balance in profit and loss accounts of previous years it need not to follow Declaration of dividend out of Reserves Rules,1975..

I hope it will clarify your doubt  !!