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Difference Between General Reserve and Specific Reserve:

Learning Objective:

  • What is the difference between general reserve specific reserve?

Both general and specific reserves are created out of profit earned in the normal course of business. Yet the following differences are observed between general and specific reserve.

General Reserve:.

1. General reserve is crated not for a specific purpose. It is created to strengthen the financial position of the business
2. It can be utilized for any purpose.
3. Dividend can be paid out of it if needed.

Specific Reserve:

1. It is created for some specific purpose. For example, debenture sinking fund is created for the purpose of repaying loan on account of debenture.
2. It can be utilized only for the purpose for which it has been created. It cannot be utilized for other purposes.
3. Dividend cannot be paid out of it. But on fulfillment of the objective for which a fund has been created the fund will no longer be required, when dividend may be paid out of it.

For example, on repayment of loan on account of debenture the debenture sinking fund is not required. Then it is transferred to general reserve fund. In other words the fund money is distributable as dividend.

 

More study material from this topic:

Definition, explanation and causes of depreciation
Depreciation is not a matter of valuation but a means of cost allocation
Activity method of depreciation
Straight line method of depreciation
Sum of the years' digits method of depreciation
Reducing balance method
Annuity method
Depreciation fund method or sinking fund method
Insurance policy method
Revaluation method
Depletion method
Machine hour rate, mileage, and global method
Methods of recording depreciation
Reserves
Difference between general reserve and specific reserve
Difference between capital reserve and general reserve
Difference between reserve and reserve fund
Difference between provision and reserve




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