In the earlier blog, we discussed about the Redeemable and Convertible Preference Shares; today we begin our journey towards understanding of the concepts of reserves.
We generally see that the reserves are coupled with the surplus under the grouping "reserves and surplus" in a balance sheet. This head consists of retained earnings as well as several non-earning items. There are several types of reserves; some of these are explained here in:
Capital Reserve: is that reserve which is not available for the company to be disbursed to shareholders as dividends
Revenue Reserves or Free Reserve: These arise from the business of the company and can be distributed amongst the shareholders of the company as dividends
Statutory Reserves: are created by companies primarily to comply with the requirement of law
Realized Reserves: represent cash or other assets received by the company in exchange transactions
Unrealized Reserves: happen to be created as the result of accounting entries without an underlying exchange transaction.
We shall discuss some of these in the next few blogs.
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