What is Secret Reserve?

Secret reserve is a reserve which does not appear in the balance sheet. It may also help to reduce the disclosed profits and also the tax liability. The secret reserve can be merged with the profits during the lean periods to show improved profits. It cab be created by way of:

• Undervaluation of inventories/stock.
• Charging capital expenditure to profit and loss account.
• Making excessive provision for doubtful debts.
• Showing contingent liabilities as actual liabilities.