Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…

disadvantages of the two methods as to control over the funds. In connection with covered reserves, attention is called again to the use, in the interest of standard practice, of the caption “reserve fund” as a suitable title for the assets placed in the fund, and the caption “reserve,” with suitable descriptive phrase, as the title for the reserved profits, the proprietorship element of the transaction. Classification of Reserves Before leaving the subject of reserves, it is purposed to give several classifications of the various kinds of reserves. Paul-Joseph Esquerré[63] classifies reserves under the following heads: (1) Reserves for Depreciation; (2) Operating Reserves; (3) Reserves for Surplus Contingencies; (4) Reserves for Redemption of Debt; (5) Secret Reserves; and (6) Reserves for Exhaustion of Physical Assets. Their titles well indicate the kinds of items included under each head. H. R. Hatfield[64] classifies them on the basis of the use to which they are to be put, not attempting a classification to include all items shown on the balance sheet under the caption of a “reserve,” but limiting it to reserves of profits. His classes are: “1. Reserves created to provide a permanent increase of capital. (a) As an additional guaranty to creditors. (b) To provide for extension of its fixed or other capital assets.