Give the meaning of reserve. - Vidyadip

Question

Give the meaning of reserve.

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Answer

Meaning: An amount appropriated out of profit to increase financial soundness of thebusiness or to meet with contigent loss or liability in future is called as Reserve. $(i)$ Reserve is an appropriation and it is created out of profit and loss appropriation account. $(ii)$ Reserve may be for a specific purpose or for solvency of the business also. $(iii)$ The amount allocated from the profit in order to face a certain or uncertain expenses. $(iv)$The basis of allocation of reserve depends on the profit of the unit. $(v)$ It can be utilised for writing off the losses of the profit and loss account. $(vi)$ General reserve is shown under the head 'Reserve and Surplus' the capital and liabilitiesside of the balance sheet.

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