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(a) General Reserve (b) Bad Debt Reserve (c) Hidden Reserve (d) Capital Reserve
(c) Hidden Reserve
Bad Debt Resurve...
A hidden reserve, sometimes called a secret reserve, is a value that does not appear in the balance sheet. It results from understating assets and/or overstating liabilities. This leads to having a net equity per books less than the actual net equity. This, of course, is false reporting and illegal. Sometimes, it is done for tax evasion. A company may overdepreciate its fixed assets per books in order to increase its depreciation expense, lower its profit, and,therefore, pay less tax. This also causes an increase in accumulated depreciation and a decrease in the net book value of fixed assets. This kind of practice relates to what is called cookie jar accounting.
