Practicing Success
Which of the following is a revenue reserve? (A) General reserve (B) Workmen compensation fund (C) Premium on issue of shares or debenture (D) Profits prior to incorporation (E) Debenture redemption reserve Choose the correct answer from the options given below. |
(A), (B), (C), (D) (A), (C), (D) (A), (B), (C), (E) (A), (B), (E) |
(A), (B), (E) |
The correct answer is option 4- (A), (B), (E). (A) General reserve- Revenue reserve (B) Workmen compensation fund- Revenue reserve (C) Premium on issue of shares or debenture- Capital reserve (D) Profits prior to incorporation- Capital reserve (E) Debenture redemption reserve- Revenue reserve
Revenue reserves are created from revenue profits which arise out of the normal operating activities of the business and are otherwise freely available for distribution as dividend. Examples of revenue reserves are:
Capital reserves are created out of capital profits which do not arise from the normal operating activities. Such reserves are not available for distribution as dividend. These reserves can be used for writing off capital losses or issue of bonus shares in case of a company. Examples of capital profits, which are treated as capital reserves, whether transferred as such or not, are :
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