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.