Reserves The constitute part of the capital of a company, other than the share capital. Reserves arise out of the retained profit and share premium, if any, charged. These are surpluses not distributed among the shareholders. Certain kinds of reserve cannot be distributed by way of bonus, or subsequent dividend, e.g. share premium account or capital redemption reserve. Surplus profit may also be earmarked for special purposes, such as reserves for obsolescence of plant. Reserves which are held as retained earnings or revenue reserves can be distributed to shareholders as dividends, while capital reserves can be issued as bonus shares and converted into share capital.

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