RESERVES In its consolidated balance sheet, Qantas Airways Ltd (2013, p. 100) provided the following information. EQUITY 2013 2012 $m $m Share capital 4 693 4 729 Treasury shares (43) (42) Reserves 128 36 Retained earnings 1 171 1 162 Equity attributable to members of Qantas 5 949 5 885 Non‐controlling interests 5 4 Total equity 5 954 5 889 In Note 23 of its 2013 annual report, Qantas Airways Ltd (2013, p. 132) explained the composition of its reserves: RESERVES 2013 2012 $m $m Employee compensation reserve 49 48 Hedge reserve 123 41 Foreign currency translation reserve (44) (53) Total reserves 128 36 NATURE AND PURPOSE OF RESERVES Employee Compensation Reserve The fair value of equity plans granted is recognised in the employee compensation reserve over the vesting period. This reserve will be reversed against treasury shares when the underlying shares vest and transfer to the employee. No gain or loss is recognised in the Consolidated Income Statement on the purchase, sale, issue or cancellation of Qantas’ own equity instruments. Hedge Reserve The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to future forecast transactions. Foreign Currency Translation Reserve The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the Financial Statements of foreign controlled entities and associates, as well as from the translation of liabilities that form part of the Qantas Group’s net investment in a foreign controlled entity. Source: Qantas Airways Ltd (2013, pp. 100, 132). Required Explain the nature of a reserve. Evaluate whether a company should retain reserve accounts other than retained earnings, providing examples to illustrate your analysis.