Secret Reserve

Meaning of secret Reserve
A secret reserve is created by intentionally hiding the actual net profit or showing net profit less than actual in the balance sheet of the organisation. secret means hidden, that is, which is present but not visible. Secret reserve means such reserve which exists but does not appear in the balance sheet.

According to the — De Paula A secret reserve is a reserve that is not disclosed in the Balance sheet so that the financial position is in fact, better than appears from the Balance sheet.

According to the — Spiced and peglar A Secret reserve may be defined as a reserve, existence and /or amount of which is not disclosed on the face of the Balance Sheet.

1. SecretReserve
MeaningofsecretReserve
Asecretreserveiscreatedbyintentionallyhidingtheactualnetprofitorshowingnetprofit
lessthanactualinthebalancesheetoftheorganisation.secretmeanshidden,thatis,which
ispresentbutnotvisible.Secretreservemeanssuchreservewhichexistsbutdoesnot
appearinthebalancesheet.
Accordingtothe—DePaulaAsecretreserveisareservethatisnotdisclosedinthe
Balancesheetsothatthefinancialpositionisinfact,betterthanappearsfromtheBalance
sheet.
Accordingtothe—SpicedandpeglarASecretreservemaybedefinedasareserve,
existenceand/oramountofwhichisnotdisclosedonthefaceoftheBalanceSheet.
ObjectsofsecretReserve
(1)Tostrengthentheinternalpositionoftheorganization.
(2)Tomeetanycontingencyloss.
(3)Toincreaseworkingcapital.
(4)Tomaintainuniformityinprofitanddividend.

2. (5)Hidingtheweaknessesofthemanagersandoperators.
(6)Hidingtheprogressoftheorganizationfromthebusinessrival.
MethodsofcreatingsecretReserve
(1)Totreatcapitalexpenditureasincome.
(2)Notshowinganyassetinthebalancesheet.
(3)Showtheassetatalowvalue.
(4)Organizingmorethannecessary.
(5)Deductingmoredepreciationonassets.
(6)Toshowliabilitiesatovervalued.
(7)Notshowingtheincreaseinvalueevenifthereisapermanentincreaseinthevalueofa
fixedasset.
(8)showingFalseliabilities
(9)Non-showingofunpaidexpensesinthebalancesheet.
AdvantageofsecretReserve
(1)Strengtheningtheeconomicconditionoftheinstitution.
(2)Increaseintheworkingcapitaloftheorganization.
(3)Maintainingreputationevenintimesofcrisis.
(4)Cheatingtherivalsbyhidingthetruefinancialposition.
(5)Maintainingequalityintherateofdividenddistribution.
(6)Maintainingpublicconfidence.
Disadvantageofsecretreserve
(1)Non-correctdisplayofprofitandloss.
(2)Balancesheetnotshowingthecorrectfinancialconditionofthebusiness.
(3)Thepublishedaccountofthecompanybeinginaccurateandmisleading
(4)Decreaseinmarketvalueofshares.

3. (5)Lackofproperknowledgeofthereputationofthebusiness.
(6)Embezzlementofpropertyeasily.
(7)beingagainstthepublicinterest
(8)Gettinglesscompensationfromtheinsurancecompany.
(9)Lossofbusinessreputation.
FrequentlyAskedQuestions
Qs1.SecretReserve
Ans.IscreatedbyInsurancecompany
Qs2.capitalReserve
Ans.Cannotbedistributedasaprofit
readmore:DifferenceBetweenProvisionandReserve