08 September 2013
Certain of the reserves are to be maintained by operation of law such as a reserve to be created under Income-Tax Act to claim deductions and called Statutory reserves...
E.g debenture redemption reserve
Another example could be reserve required to be maintained by banking companies @ 25% of net demand and time liabilities.
Specific reserves are those created for specific purposes. Reserve for unexpired risk is to meet the eventuality of a claim arising out of an existing policy. It can only be used for that purpose, and not for any other purpose. So is the case with dividend equalisation reserve which can be used only to maintain consistency of dividend. such reserves are called nom free reserves..
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