Types of Reserves Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

Ans. There are various types of reserves, including: - Revenue Reserves: These reserves are created from the profits earned by a company and are retained for future use. - Capital Reserves: Capital reserves are created from non-operating activities such as the sale of assets or investments and are used for specific purposes. - General Reserves: General reserves are created from the profits of a company and are not earmarked for any specific purpose. - Specific Reserves: Specific reserves are created for a particular purpose such as future expansion, dividend equalization, or loan repayment. - Contingency Reserves: Contingency reserves are set aside to cover unexpected events or contingencies that may arise in the future.

Ans. Revenue reserves and capital reserves differ in terms of their source and purpose. Revenue reserves are created from the profits earned by a company and are retained for future use. They represent the accumulated profits that have not been distributed to shareholders as dividends. On the other hand, capital reserves are created from non-operating activities such as the sale of assets or investments. They are used for specific purposes such as the acquisition of fixed assets, repayment of long-term debt, or issuance of bonus shares.

Ans. General reserves are created from the profits of a company and are not earmarked for any specific purpose. These reserves serve as a cushion for the company during periods of financial instability or unexpected expenses. They provide the company with flexibility and can be utilized for various purposes such as funding research and development activities, expanding the business, meeting future contingencies, or offsetting any potential losses. General reserves also enhance the financial stability and credibility of the company.

Ans. Specific reserves and contingency reserves differ in terms of their purpose and utilization. Specific reserves are created for a particular purpose, such as future expansion, dividend equalization, or loan repayment. They are set aside to meet specific future obligations or requirements of the company. On the other hand, contingency reserves are set aside to cover unexpected events or contingencies that may arise in the future. These reserves act as a buffer against unforeseen circumstances such as economic downturns, natural disasters, or legal liabilities. Contingency reserves are more general in nature and provide protection against various risks.

Ans. Several factors should be considered while determining the amount of reserves, including: - Future expansion plans: The company's growth strategy and plans for future expansion may require the creation of specific reserves to fund these initiatives. - Profitability and cash flow: The company's profitability and cash flow patterns should be analyzed to determine the amount of reserves that can be comfortably set aside without affecting the day-to-day operations. - Risk assessment: The assessment of various risks, such as market volatility, economic uncertainties, and legal liabilities, should be taken into account while deciding the amount of contingency reserves. - Capital structure: The company's capital structure and debt obligations should be considered to ensure that sufficient reserves are available for debt repayment or other financial obligations. - Regulatory requirements: Any specific regulatory requirements regarding the minimum reserve levels or reserve utilization should be complied with to avoid any legal consequences.