Nature of Management Audit

Management Audit is an emerging dimension of auditing.” Make some reflections on the statement. Auditing is dynamicand expansive as it enters into the ramifications of accounting—hand in hand with changing economic, social and technological environments in and around the business world. In broad perspective, auditing, as described by the American Accounting Association, is a functional […]

Dividends Paid Out of Capital

 What do you mean by the statement “dividends are paid out of capital”? How can dividends be paid out of capital and what are the consequences if dividends are paid out of capital ? Dividends are said to be paid out of capital when the company voluntarily returns to the shareholders some part of the […]

Meaning of Divisible Profits

The term “divisible profits” means all profits which can legally be distributed among the shareholders of a company as dividend. However, neither the Companies Act nor the legal decisions explain clearly what is meant by divisible profits. Among the various legal decisions in regard to divisible profits, two are of crucial importance. In one case […]

What are Secret Reserves ?

What are Secret Reserves

Meaning A secret reserve may be defined, after Spicer and Pegler, “as a reserve, the existence and amount of which is not disclosed on the face of the Balance Sheet”. It is also called “internal reserve” or “hidden reserve”. ‘ It means that there is a surplus of assets over capital and liabilities and that […]

What is Capital Reserve?

What is Capital Reserve

Definition De Paula defines capital reserve thus : “Capital Reserves represent Capital items that are not free for distribution”. The Companies Act has defined the term “capital reserve” negatively as “a reserve which shall not include any amount regarded as free for distribution through the Profit and Loss Account”. In other words, capital reserve is […]

What is meant by Reserve Fund ?

What is meant by Reserve Fund

(a) Definition When a revenue reserve created out of divisible profits is invested outside the business and is represented by such investments, it is called “reserve fund”. According to the Companies Act, the term “reserve fund” should be used to denote such a revenue reserve which is represented by specifically earmarked investments. The Companies Act […]

Classification of Reserves

Explain, with illustrations, the various types of reserves. Reserves are mainly of two types : Capital reserve and revenue reserve. (1) Capital Reserve. According to the Companies Act, 1956, a capital reserve represents amounts which are not free for distribution among the shareholders, such as surplus upon a revaluation of fixed assets and profit earned […]