<\/span><\/h3>\n\n\n\nThose\nreserves which are specifically created by debiting the Profit and Loss Account\nand shown specifically on the Liabilities side of the Balance Sheet are called\nOpen Reserves or Published Reserves.<\/p>\n\n\n\n
The\nOpen reserves are of two types which are as follows:<\/p>\n\n\n\n
A. CAPITAL RESERVE<\/strong><\/p>\n\n\n\nCapital Reserves are the reserves created out of capital profits. These reserves are not made available for distribution as dividend among the shareholders.<\/p>\n\n\n\n
<\/span>Examples\nof capital profits out of which capital reserve is maintained:<\/strong><\/span><\/h4>\n\n\n\nProfit on: <\/p>\n\n\n\n
- Sale of fixed assets.<\/li>
- Sale of investments.<\/li>
- Redemption of debentures.<\/li><\/ul>\n\n\n\n
<\/span>Objectives\nof creating capital reserves:<\/strong><\/span><\/h4>\n\n\n\n- To help in making the organization\nfinancially strong.<\/li>
- To help in writing off the capital\nlosses. <\/li>
- To help in issue of fully paid bonus\nshares to existing shareholders.<\/li><\/ul>\n\n\n\n
<\/span>Disadvantages\nof capital reserves:<\/strong><\/span><\/h4>\n\n\n\n- Reserves are not made available for distribution to shareholders.<\/li>
- It does not give any indication of operating efficiency of the business.<\/li>
- It does not help in making the management responsible to sell old assets at satisfactory price.<\/li><\/ul>\n\n\n\n
B. REVENUE RESERVE<\/strong><\/p>\n\n\n\nRevenue reserves are the reserves set aside out of revenue profits which are available for distribution as dividend.<\/p>\n\n\n\n
ACCORDING TO KOHLER<\/strong><\/p>\n\n\n\n\u201cA revenue reserve is that portion of the net worth or total equity of an enterprise representing retained earnings available for withdrawal by the proprietors.\u201d<\/p>\n\n\n\n
<\/span>TYPES\nOF REVENUE RESERVES<\/strong><\/span><\/h3>\n\n\n\n<\/span>1. GENERAL RESERVE<\/strong><\/span><\/h4>\n\n\n\nIt is the reserve created out of the profit not for any specific purpose. Revenue reserve is called \u2018Contingency Reserve\u2019.<\/p>\n\n\n\n
<\/span>Objectives\nof creating General Reserve:<\/strong><\/span><\/h4>\n\n\n\n- To strengthen the financial position\nof the business.<\/li>
- To meet the unknown and unexpected\nliabilities or losses.<\/li>
- To provide the funds for the expansion\nand development of the business.<\/li><\/ul>\n\n\n\n
<\/span>Disadvantages of General\nreserves: <\/strong><\/span><\/h4>\n\n\n\n- It reduces the available profits to be\ndistributed to the shareholders.<\/li>
- It shows the position of the business\nbetter even in the years of the loss.<\/li>
- It leads the management for unfair use\nof reserve to maintain the reputation of the business.<\/li><\/ul>\n\n\n\n
<\/span>General Reserves Accounting:<\/strong><\/span><\/h4>\n\n\n\n