In its consolidated financial statements, Sandfords Ltd provides the following information.

If equity is considered a residual, explain why a company should have reserve accounts? Use the data from Sanford’s to illustrate your discussion.

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STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2020 Balance at 1 October 2019 Profit for the year (after tax) Other comprehensive income Foreign currency translation differences Hedging losses recognised in other comprehensive income Deferred tax on change in reserves Amount of treasury share cost expensed in relation to share-based payment Share Based Cash Flow Cost of Note Share Capital $000 Payment Translation Hedge Hedging Reserve Reserve Reserve Reserve $000 $000 $000 $000 Retained Earnings $000 Non Controlling Total Total Interest Equity $000 $000 $000 94,690 401 410 (21,122) (4) 513,132 587,507 675 588,182 22,444 22,444 (11) 22,433 160 - 25,248 1,165 (7,069) (326) - 160 1 161 26,413 (7,395) - 26,413 (7,395) (401) Total comprehensive income (401) 160 18,179 Distributions to shareholders 17 Balance at 30 September 2020 94,690 570 (2,943) 835 (401) 839 22,444 41,221 (17,766) (17,766) 517,810 610,962 (401) (10) 41,211 - (17,766) 665 611,627