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about general reserve

vinod sharma (accountant) (33 Points)

29 September 2007

how to use general reserve for which porpose applying general reserve. Please Reply immediate.

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3 Replies

Miss Komal Mantri (Chartered Accountant ) (1974 Points)
Replied 29 September 2007

General reserve is a free reserve and u can apply it to for any purpose...... even G. Reserve can be utilised for payment of dividend after fulfilling certain conditions.....

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Ravikumar.G (Consultant) (18525 Points)
Replied 29 September 2007

General Reserve may be provided against unknown future contingencies, to increae the working capital or merely to strengthen the financial position of the concern. Need to retain profits in the business is the basis for creation of General Reserves. These are free reserves available for any general purpose of the business. As per co's Act u/s 205(2A) - if dividend is declared more than 10% , the percentage of profits required to be transferred to General Reserve. Simply say plough back to the company

(Guest)

When company is incurring huge accumulated losses (say Rs.30,000) in past years. And stated earning profit in last three years (say Rs.95, Rs.45 and Rs.52) but not enough to cover the past accumulated losses. Can company declare dividend in the currend year (When profit was Rs.52) with huge losses accumulated inthe balance sheet.

Section 205 says first company have to set off depreciation of loss period or the losses, whichever is less. In this case company had previous depreciations total amounting to say Rs.55.

In this regard my querry is

(a) Can company in this case when has the huge accumulated losses declare dividend.

(b) Can company create general reserve when balance sheet showing (on other side) huge accumulated losses.

Please quote the rules position also