Main benefits or advantages of creating reserves can be expressed as follows:
1. To Improve The Financial Position
Main purpose of creating reserve is to recover the future contingencies of the business. It helps to improve the financial position of business organization.
2. To Expand Business
Reserve helps to expand business activities by providing fund and resource. So, it is a major source of internal financing.
3. To Overcome Future Loss
One of the main benefits of creating reserve is to meet future losses and liabilities. It also helps to meet future needs of the business.
4. To Distribute Dividend
Reserve helps to distribute dividend uniformly to the shareholders over the years. It increases the goodwill of the firm.
Reserve helps to maintain adequate working capital in the business. It provides needed amount at the time of emergency and shortage.
6. To Replace Assets
Reserve fund can be used to replace obsolete and useless assets with the new one. So, it eases in smooth operation of business activities.
