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P2 C3 Provisions and Reserves — Account STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C3 Provisions and Reserves3 Marks
Question
What is specific reserve ? State its types.
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Answer

Meaning: When a Revenue reserve is created out of profit and loss appropriation accountfor specified purpose is known as Specific Reserve. Thus such reserve is used for thesame purpose for which it is created. The most important point about this reserve is thatthe balance of specific reserve after serving its pupose is transferred to general reserve. Following are the types of Specific Reserve:
$(1)$ Dividend Equilization Fund: The purpose of creating this reserve is to distribute dividendto shareholders in the year in which the profit is not sufficient or even to maintaindividend in the year of loss.
$(2)$ Debenture Redemption Reserve or Fund : The purpose of redeeming debentures out ofprofit, a specific amount is appropriated from profit every year and transferred to debentureredemption fund (reserve) and the balance of debenture redemption fund is transferred to General reserve after redeeming debentures.
$(3)$ Investment Fluctuation Funds: It there is possibility of reduction in the market price,some amount is transferred to investment fluctuation fund out of profit. After sale ofinvestments, a loss amount on this investment deducted from this reserve and balanceamount of investment fluctuation fund is transferred to general reserve.
 $(4)$ Workers Accident Compensation Reserve or Fund : This reserve is created to compensateworkers or employees when they meet with an accident during working hours.
$(5)$ Sinking fund : The reserve which is created out of profit for the purpose of the paymentof long term debt or regular payment of interest or purchase of fixed assets is called assinking fund e.g. Depreciation fund for purchase of fixed asset, debenture redumptionreserve for redeeing debentures.

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