Investment Valuation in India

A Reserve may be defined as a sum set aside out of the business profits of a business unit. It is set aside with a view to providing for unexpected or unknown future losses or for strengthening the overall financial position of the unit. The reserves represent undistributed profit of the business so it is also classified under Retained Profits. It is an example of Appropriation of profits and appears under the Liabilities (or Application of Funds) in the Balance Sheet. Since it is created after ascertaining net profits, it effectively does not reduce the profits of the business. Objectives The main purpose of creating Reserves is to stabilise the financial position of the business. The main objectives are: To strengthen the financial position of the business To increase the amount of working capital To meet future contingencies To acquire a asset for the business at a later date To meet any unknown liability or loss Types Reserves are broadly class...