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Capital reserve versus reserve capital

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)

17 July 2012

Suppose there is a question in an exam about the differences between capital reserve and reserve capital. And somebody gives the answer :

Capital reserve can be utilised at any time in the life of the company but reserve capital can be utilised only duting winding up.

Is the answer correct pertaining to capital reserve portion.

Regards,

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CS Mitesh Mehta (Company Secretary) (17139 Points)
Replied 18 July 2012

1.Capital reserve is created out of capital profits (profit due to reevaluation of assets) and therefore it is not available for distribution as dividend to the shareholders, while reserve capital is that part of authorized capital of a company which is not called up by the company.

2. Reserve capital can be used by the company only in case of liquidation of the company while capital reserve can be used by company at any time for purchasing long term assets by the company.

3. Capital reserve is shown on the liabilities side of the balance sheet while Reserve capital is not disclosed in the balance sheet of the company.

4. Capital reserve can be used by the company to write off capital losses which arises due to selling of assets at lower prices than the book value of that asset while Reserve capital cannot be used for that purpose.