UNIT -2

Elements of Accounting
Reserves
 Part of profit retained for any known or
unknown contingencies, liability or
decrease in the value of assets.
 It is appropriation of Profit.
 Created out of undistributed
 It is created to met unforseen future
uncertainties.
 Importance of Reserves
 Reserves are important in business to
strengthen the financial position of the
concern .
 It enables the concern to tide over a
difficult financial period in future.
 It is a cost free source of internal
financing.
 Purpose of reserve :
i. Expansion
ii. Meeting unforeseen contingencies
Types Of Reserves
 Revenue Reserves
Created out of revenue profits which are
available for distribution as dividend
 Capital Reserve

Not available for distribution as cash

dividend.
 General Reserve
 Specific Reserve
Secured Loan
Secured loan is a loan in which the
borrower pledges some asset (e.g. a car
or property) as collateral for the loan,
which then becomes a secured debt
owed to the creditor who gives the loan.
 The debt is thus secured against the
collateral — in the event that the borrower
defaults, the creditor takes possession of
the asset used as collateral and may sell it
to regain some or all of the amount
originally lent to the borrower .
Mortgage Loan
 A mortgage loan is a loan secured by
real property.
Terms:
 Mortgae
 Borrower
 Interest
 Lender
Debentures:

 A debenture is a long term loan raised by

the company. It is a kind of promissory
note, in which the firm promises to pay
interest and principal.
Types of debentures:
 On the basis of convertibility
 On the basis of redemption
On the basis of convertibility
 Non-convertible
 Fully convertible
 Partly convertible

On the basis of Redemption:

Redeemable
Irredeemable
 Types of Share Capital
 Equity Share Capital
1. Authorized Share capital (nominal/Registered
Share Capital)
2. Issued Share capital
3. Subscribed Share capital
4. Called up Share capital
5. Paid up Share capital
6. Uncalled Share capital
 Preference share Capital
1. Convertible & Non-convertible
2. Redeemable & irredeemable
Other Terms
 Share Premium
 Bonus Shares
 Rights Issue
 Current Assets
 Current Liabilities
 Investments
Objectives:
 Return
 Risk
 Liquidity
 Safety
 Hedge against inflation