Treatment of contingency reserve in dissolution
Answers
The definition of Contingency reserve is, “an appropriation of surplus or retained earnings that may or may not be funded, indicating a reservation against a specific or general contingency There are two types of risks “identified risk and unidentified risk”. “Contingency reserve is used to manage identified risks.” The amount reserved will be an estimated figure.
An organisation creates this reserve out of “Profit and Loss Appropriation A/c”. During the accounting period, if the organisation has no “contingent liability to be paid”, this reserve is shared between the partners' according to their ratio in the profit earned. In case, “if there is any liability against contingency reserve”, then, the organisation transfers this reserve to the “credit side of Realistion A/c” and “liabilities are paid through Realisation A/c.”