Difference between general and specific reserves?

Answer 1

Capital Reserve:1.It is created out of the profit earned not in the normal course of business. For example, to a bookseller, profit on sale of books is a regular profit. But profit earned on sale of something other than books is capital profit.2.Capital employed in business is increased permanently.3.It is usually not available for the payment of dividends.4.Liability and loss of capital nature can only be met by it. General Reserve:1.It is created out of profit earned in the normal course of business.2.It increases capital employed temporarily.3.It is available for the payment of dividends.4.It is available for meeting any type of liability or loss.

Answer 2

Both general and specific reserves are created out of profit earned in the normal course of business. Yet the following differences are observed between general and specific reserve.

General Reserve:.

1.

General reserve is crated not for a specific purpose. It is created to strengthen the financial position of the business

2.

It can be utilized for any purpose.

3.

Dividend can be paid out of it if needed.

Specific Reserve:

1.

It is created for some specific purpose. For example, debenture sinking fund is created for the purpose of repaying loan on account of debenture.

2.

It can be utilized only for the purpose for which it has been created. It cannot be utilized for other purposes.

3.

Dividend cannot be paid out of it. But on fulfillment of the objective for which a fund has been created the fund will no longer be required, when dividend may be paid out of it.

For example, on repayment of loan on account of debenture the debenture sinking fund is not required. Then it is transferred to general reserve fund. In other words the fund money is distributable as dividend.