Seetha (B.Com, CA) (278 Points)
29 April 2009hi friends,
what is the difference between statutory requirements (eg: creation of a general reserve ) & statutory reserves (eg:Investment allowance fund, Development rebate reserve)
These are those examples of reserves that i came across in a format of company balance sheet.
thanx
Anuraag Sharma
(Sr Executive Finance)
(845 Points)
Replied 29 April 2009
Stautory requirement(i.e. Creation of Statutpry Reserve) is a statutory requiremnent for retention of earnings like tarnsfer of minimum percentage of earnings at the time of distributing dividend to satkeholders..etc.
A comapny can use it as a free resrve except in the year in which it is created.
On the other hand, Satutory reserves are the reserves created for some specific purpose and are not available for distribution among stakeholders it may be ant kind of Reserve,
Investment Allowance Reserve ,Development Rebate Teserve etc.
Investment allowance Reserve is a reserve required to be created under the requitremnts of income Tax Act, 1961 and i don't think so that the requiremnets are still prevelant.
development rEbate terserve is akind of reserve normally created in case of electricty companies....for deeper knowledge refer institue's study material (electricy Companies)
Seetha
(B.Com, CA)
(278 Points)
Replied 01 May 2009
thank u anuraag and thank u sir,
i would further like to know how much % of the profits are transferred to the reserve.
does it depend on boards decision.?
Seetha
(B.Com, CA)
(278 Points)
Replied 01 May 2009
is it necessary that these reserves (statutory reserves) created are to be used fully.
if some amt is kept unused or the purpose for which it was made comes to an end then what will be done?
thanx
Anuraag Sharma
(Sr Executive Finance)
(845 Points)
Replied 02 May 2009
no transfer of dividend does not depends on board's decision
as per sec 205(2A) of Comapies Act, 1956 read with Companies (Transfer of Profits to Resrves) Rules, 1975 :
Sr. no. Prposed Dividend Transfer to Reserves(minimum)
a). upto 10% of paid up capital Not mandatory to transfer any
profits to reserves
b). 10% - 12.5% of paid up capital 2.5% of Profits
c). 12.5% - 15% of paid up capital 5% of Profits
d). 15% - 20% of paid up capital 7.5% of Profits
e). more than 20% of paid up capital 10% of profits
If the company thinks it fit to tarnsfer a higher percentage of profits to Resrves then it may do so.
It is also not necessary to utilise the statutory resrve in full provided it sholud not be against the interest of the company or shareholders or for the purpose it is created.
if some amount id reamined unutilised and it is expected taht there is no more any requirement to maintain such Stautory Reserve it can be transferred to General Resrve by passing a Special Resolution it would further lead to disclosure requirements in the financila statements of the company.
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 02 May 2009
Agree with Mr. Anuraag
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