Question

Difference between general reserve and specific reserve

Answer 1

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 business2.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.

Answer 2

Hey Mate!

General Reserve:

1. Reserve created not for any specific and earmarked purpose is known as general reserve.

2.General reserve is created to meet some future contingencies and for strengthening financial position of a business concern.

3. General reserve is utilized to meet any unknown liability.

4. In case of need, general reserve can be utilized for paying dividend.

Specific Reserve:

1. Reserve created for some specific and earmarked purpose is known as specific reserve.

2. Specific reserve is created for some specific purpose.

3. Specific reserves can be utilized only for the purpose for which they were created.

4. Usually, dividend can not be paid out of the specific reserves.

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