- Reserve (accounting)
In
financial accounting , the term reserve is most commonly used to describe any part ofshareholders' equity , except for basic share capital. Sometimes, the term is used instead of the term "provision"; such a use, however, is inconsistent with the terminology suggested byInternational Accounting Standards Board . For more information about provisions, seeprovision (accounting) .Equity "reserves" are created from several possible sources:
* Reserves created from shareholders' contributions, the most common examples of which are:
:*"legal reserve fund" - it is required in many legislations and it must be paid as a percentage of share capital
:*"share premium" - amount paid by shareholders for shares in excess of their nominal value
*Reserves created from profit, especially
retained earnings , i.e. accumulated accounting profits. However, profits may be distributed also to other types of reserves, for example::*"legal reserve fund from profit" - many legislations require creation of the fund as a percentage of profits
:*"remuneration reserve" - will be used later to pay bonuses to employees or management
:*"translation reserve" - arises during consolidation of entities with different reporting currencies
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