Question

Specific reserve is created out of

• A. Gross Profit
• B. Net profit
• C. Even loss this reserve is created
• D. Capital Profits

Answer 1

Answer:

B. Net profit

Option	Reason
(a) Gross Profit	Not correct — because reserves are created after deducting all expenses and taxes, i.e. from net profit.
(b) Net Profit	✅ Correct — reserves are appropriations of net profit.
(c) Even loss this reserve is created	❌ Wrong — reserves are not created in years of loss (unless law requires, like DRR in some cases).
(d) Capital Profits	❌ Wrong — capital profits are used for capital reserves, not specific reserves.

A Specific Reserve is a reserve created out of the business’s profits — usually out of net profit (that is, profit after all expenses, depreciation, etc.).

It is set aside for a particular purpose — for example:

·        Debenture Redemption Reserve → to redeem debentures

·        Workmen Compensation Reserve → to pay workmen’s compensation

·        Investment Fluctuation Reserve → to cover losses on investments

Reserve Name	Created From	Purpose
Debenture Redemption Reserve	Profits	To repay debentures on maturity
Workmen Compensation Reserve	Profits	To meet compensation claims of workers
Investment Fluctuation Reserve	Profits	To cover losses due to fall in investment values
Depreciation Reserve	Profits	To replace or renew fixed assets in future