13 February 2018
Capital Reserve is the part of the profit or surplus, maintained as an account in the Balance Sheet that can be used only for special purposes.It is not freely available to be distributed.
When shares are redeemed or bought back, the company is required to either replenish the capital by issuing fresh shares in lieu of the redeemed or bought back shares or to transfer their funds to an account called the Capital Redemption Reserve (CRR). As the name suggests, it is a reserve created when capital is redeemed. Funds in Capital Redemption Reserve can be used for only one thing - issue of fully paid up bonus shares. Thus, any amount transferred to CRR will eventually be converted into share capital.
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