TRANSFER TO RESERVES

Transfer to Reserves

I The Board of Directors are free and can appropriate a part of the profits to the credit of a reserve or reserves as per section 123 (1)of the Companies Act, 2013.

II Appropriation of a part of profit is sometimes made under law.

    (A) For example, under the Banking Regulation Act, a fixed percentage of the profit of a banking           company must first be transferred to the General Reserve before any dividend can be distributed.

     (B) Transfer of a part of profit to a reserve is also necessary where the company has undertaken,           at  the time of raising of loan, that before any part of its profit is distributed, a specified                       percentage of the profit every year should be credited to a reserve for the repayment of the loan           and until the time for repayment arrives, the amount should remain invested in a specified                   manner.

III Apart from appropriations aforementioned, it may also be necessary to provide for losses and arrears of depreciation and to exclude capital profit, as mentioned earlier, to arrive at the amount of divisible profit.