A reserve (type of a specific reserve) that is created specifically for the purpose of ensuring stability of an entity’s dividends despite any potential fluctuations in earnings over time, or period to period. This reserve constitutes appropriation from an entity’s income in a reporting period (usually period of significant profits).
An entity may make, out of this reserve, dividend payments during periods of low profits (less than usual earnings) or large losses (higher than expected losses).
The purpose of such a reserve is to maintain shareholders (or broadly owners) in the entity.
This reserve is also known as a dividend equalization account.
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