Page 55 - MAZOO EBOOK 1_Neat

o To issue fully paid bonus shares;

o To write off preliminary expenses;

o To write off the expenses of, or any discount allowed on, any issue of shares or

debentures;

o To provide for any premium payable on the redemption of debentures.

Revaluation reserves - are most often used when an asset’s market value greatly fluctuates or is

volatile due to currency relationships. Companies have the flexibility to create line items for

reserves on the balance sheet when they feel it is necessary for proper accounting presentation.

Companies may use reserves for various reasons, including asset revaluation.

GENERAL RESERVES - When any amount is kept separate by a company out of its profit for

future purpose then that is called as general reserves. In other words the general reserves are

the retained earnings of a company which are kept aside out of company’s profits to meet

future (known or unknown) obligations. General reserves are the part of Profit and Loss

Appropriation Account. (l48)

Retained profit - is the amount of a business’s net income that is kept within its accounts, rather

than paid out to shareholders. Retained profit is a strong indicator of the long-term financial

stability of a business. Unlike operating profit, retained profit accounts for money taken out of a

business as drawings or dividends.

Formula

Retained profit brought forward + net income - drawings/dividends = RP

Example if a business is in its third year and had a retained profit of £5,000 in each of the first

two years, then its retained profit brought forward would be £10,000.

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