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statutory reserve

Osheen Bhattacharya (CA Final) (241 Points)

06 November 2010

can someone pls tell me what is statutory reserve with a few examples (chapter amalgamation)

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Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 06 November 2010

Statutory reserves means reserves(profit) appropriated for compliance of any law(statute).

For.e.g:- Sec117(c)(1) of Companies Act, says " A company must create debenture redemption reserve for redemption of debentures" . The amount is appropriated every year until such debentures are redeemed.

Clarification of above provision{117(c)(1)} is given by SEBI vide circular No. 9/2002 dated 18.4.2002

Another example could be reserve required to be maintained by banking companies @ 25% of net demand and time liabilities.

I assume that you know treatment of statutory reserves in amalgamation.

Hope you are clear.

8 Like

Resham (Carpe Diem !!!) (6535 Points)
Replied 06 November 2010

As you are asking for amalgamation take care of these points also..

For amalgamation in nature of purchase

-- No reserves other than statutory reserves should be incorporated in the books of Purchasing company.

-- The statutory reserves are those reserves in the books of vendor company which are to be maintained by purchasing co. after amalgamation for certain number of years.

Entry--

Amalgamation adjustment a/c Dr.

To statutory reserves a/c

(reverse the entry when the assets are no longer required)

Various Statutory reserves --

Development Rebate Reserve

Investment Allowance Reserve

Export Profit Reserve

5 Like

CA Lokesh Pokharna (CA (Ahmedabad Bhilwara Chittorgarh)) (4128 Points)
Replied 06 November 2010

SIMPLE DEFINITION OF STATUTORY RESERVE: RESERVE WHICH IS CREATED / RETAINED DUE TO APPLICABILITY OF LAWS/ACTS

AND REGARDING AMAGAMATION: SEE

As you are asking for amalgamation take care of these points also..

For amalgamation in nature of purchase

-- No reserves other than statutory reserves should be incorporated in the books of Purchasing company.

-- The statutory reserves are those reserves in the books of vendor company which are to be maintained by purchasing co. after amalgamation for certain number of years.

Entry--

Amalgamation adjustment a/c Dr.

To statutory reserves a/c

(reverse the entry when the assets are no longer required)

Various Statutory reserves --

Development Rebate Reserve

Investment Allowance Reserve

Export Profit Reserve

1 Like

ayushee dey (CA Final Student) (161 Points)
Replied 06 November 2010

Agree with Lokesh and Resham............and these statutory reserves are maintained for a minimum period of 4 years

1 Like

SWEETY MITTAL (CA) (27 Points)
Replied 22 February 2012

statutory means required by law (statue) and reserves means appropriation of profit ,but there is a difference between simple reserve and statutory reserve i.e,statutory reserve will be made from profit &loss account while simple reserve made from profit & loss appropriation account.

1 Like