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Free Reserves

CA.VATSAL SHAH (SERVICE) (202 Points)

31 July 2008

Dear All,

in free reserves as per section 372A , SURPLUS AS PER P & L A/C consider or not?

pls send me your answer at cavickyshah @ gmail.com

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15 Replies

Rishi Vyas (Internal Auditor) (189 Points)
Replied 01 August 2008

Yes it is considered. as per section 372A (b) "free reserves" means those reserves which, as per the latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit of the securities premium account bat shall not include share application money.] Free reserves are those which are not made for some specified purpose like Debenture redemption reserve of revaluation reserve. P&L A/c is a free reserve and so the surplus standing to it will be considered for loan purpose under section 372A of the Companies Act.

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CA RAMESH KUMAR AHUJA (CA, DISA, LLB) (5452 Points)
Replied 01 August 2008

Yes, surplus of Profit and Loss account is a Free Reserve.

ANUJ MISHRA (CA FINAL) (25 Points)
Replied 19 February 2011

is security premium is free reserve for caro2003

Ashish Bhagat (Asst. Manager) (21 Points)
Replied 25 May 2011

Foreign Currency Fluctuation reserve - Is it Free Resrve

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 26 May 2011

For the purpose of section 372A Free Reseves are:-

Those reserves which, as per the latest audited balance sheet of the Company, are free for distribution as dividend and shall include balance to the credit of the securities premium account but shall not include share application money.

It means Balance of P&L account is a Free Reserve for section 372A

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(Guest)

FREE RESERVE:ARE ACCUMALATED PROFITS EARNED YEAR AFTER YEAR&ACCOUNTED UNDER THIS

a.GENERAL RESERVES

b.SHARE PREMIUM

c.CAPITAL RESERVE

d.DEBENTURE REDEMPTION RESERVE

e.CAPITAL REDEMPTION RESERVE

f.CREDIT BALANCE OF P&L A/C

TRIYAMBAK PATRO (IPCC STUDENT) (71 Points)
Replied 13 September 2012

Originally posted by : rakhiya rakshana
	FREE RESERVE:ARE ACCUMALATED PROFITS EARNED YEAR AFTER YEAR&ACCOUNTED UNDER THIS a.GENERAL RESERVES b.SHARE PREMIUM c.CAPITAL RESERVE d.DEBENTURE REDEMPTION RESERVE e.CAPITAL REDEMPTION RESERVE f.CREDIT BALANCE OF P&L A/C

CRR,DRR,capital reserve are not available for distribution of profit then how can they be free reserve?

Abhijith G Sanal (Student Company Secretary) (21 Points)
Replied 17 April 2014

I would like to add a little to what CS Ankur Srivastava shared about free reserves. Actually Section 372A ( which is inserted as a new section to the Companies Act,1956 through an amendment in the year 1999 ) deals with Inter-corporate loans and investments,there are 10 sub-sections relating to various aspects of Inter-corporate loans and investments. At the end of this and before beginning section 373, two explanations are given- It says that for the purposes of Section 372A

1. "loan" includes debentures or any deposit of money made by one company with another company,not being a banking company;

2. "free reserves" means those reserves which, as per the latest audited balance sheet of the company,are free for distribution as dividend and shall include balance to the credit of the Securities Premium Account but shall not include Share Application Money.

Likewise we can find another explanation of "free reserves"given there under Clause 29A which defines what a "net worth" is ( section 2 of Companies Act,1956) -

for the purposes of Clause 29A, "free reserves" means all reserves created out of the profits and share premium account ( now securities premium account) but does not include reserves created out of revaluation of assets, write back of depreciation provisions and amalgamation.