Contingency reserve is used to fund the activities that are not initially planned and which result from an emerging risk.
A provision made for a particular or general contingency by allocating surplus or retained profits that may or may not be paid.
Out of the profit for the current year, a general reserve is made without any particular goal or intention. They were developed to support the business and cover potential liabilities, whether they materialize or not.
When a danger materializes, the risk response strategy calls for the utilization of the contingency reserve. The cost or schedule is increased to account for the risk's actual impact, the forecasts are revised, and the contingency reserve is reduced.
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