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Free Reserves as per Companies Act 2013 Meaning Exclusions

The definition of 'free reserves' is given under clause (43) of section 2 of the Companies Act 2013.

definition of free reserves under companies act 2013What is free reserves? Meaning

Free reserves means such reserves which are available for distribution as dividend.

The reserves amount as per the latest audited balance sheet of a company is taken for consideration.


What all are not treated as free reserves?

• any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise;

• any change in carrying amount of an asset or a liability recognized in equity, including surplus in profit and loss account on measurement of the asset or liability at fair value.




Whether capital reserve is a free reserve?
Is revaluation reserve a free reserve?
Is securities premium included in free reserves?
Whether debenture redemption reserve is a free reserve?

No.

The capital reserves, revaluation reserves, debenture redemption reserves, securities premium and statutory reserves do not form a part of free reserves.


Bonus Shares

As per Section 63(1), a company may issue fully paid-up bonus shares to its members/shareholders out of its free reserves.

Comments

  1. Whether capital reserve is an example of free reserve ??

    ReplyDelete
  2. Anonymous06 May, 2017

    whether share issue expoense can be written off against free reserves?

    ReplyDelete
  3. No it is not a free reserve because it is not available for distribution of dividend

    ReplyDelete
  4. Anonymous11 May, 2022

    Pre incorporation profits are free reservves or not

    ReplyDelete

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