These revenue reserves can also divide into two parts.
To make stability in the dividend rate.Used to create strength in the financial position of business.There are following benefits of revenue reserves:. It can be used for dividend to shareholders. It is showed in profit and loss appropriation account. Revenue reserves are that part of open reserves which are created out of profit of company. Surplus on revaluation of assets and liabilities.Profit on sale of undertaking or part of it.Profit set aside for the purpose of redemption of preference shares.Premium on the issue of shares and debentures.The main sources of these reserves are following:. This reserve is not used for distributing the dividend to shareholders of company. It is not created out of profit of company. This type can also divide in sub partsĬapital reserves are main type of open reserves. Those reserves provide full information to shareholders about which amount has gone to reserves or why they are not getting all amount of dividend. Every person or public can know such reserves of company. Open reserves may be defined all reserves which shows in the balance sheet.
There are two main types of reserves which I am explaining with following way :.
