Learning Objective:
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. |
|