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Pankaj Arora (Learner) (3134 Points)

05 September 2011

Dear Friends

I am confuse between general reserve and capital reserve? Please tell me what is general reserve and capital reserve and for which purpose it can be use in future?

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kamal kishor sen (STUDENT Rajasthan) (2156 Points)
Replied 05 September 2011

Capital Reserve

The reserve which is created out of the capital profit is known as capital reserve. Capital reserve is created out of the profit of some specific transactions of capital nature. It is not available for the distribution to shareholders as dividend. It is used to meet capital loss. Capital reserve is shown on the liabilities side of the balance sheet. Sometimes, it can be used to issue fully-paid bonus shares.

Items of capital profit out of which capital reserve is created:
* Profit on revaluation of assets and liabilities.
* Profit on sale of assets
* Profit on sale of shares and debentures
* Profit on forfeiture of shares
* profit on redemption of debentures
* profit on purchasing running business

Revenue Reserve/General reserve

Revenue reserve is created out of the revenue profit earned in the normal course of the business. It refers to the undistributed revenue profit. It can be distributed as dividend to the shareholders. Revenue reserve helps to strengthen the financial position of the company and also helps to declare uniform rate of dividend.

Items relating to revenue reserve
* General reserve
* Dividend equalization fund
* Sinking fund
* Research and development fund

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G.L.Subhramanian (PCS) (206 Points)
Replied 05 September 2011

Hi pankaj,

Capital Reserve is a reserve set aside out of capital for long time projects in the future.

General Reserves are retained from current year's profits for offsetting future losses.

Regards,

Subbu

Pankaj Arora (Learner) (3134 Points)
Replied 05 September 2011

Hey friends thanks could you please also tell me what is capital redemption ?

CA Priyanka Kushwaha (Chartered Accountant) (1072 Points)
Replied 05 September 2011

Hi Pankaj,

Capital Redemption Reserve (CRR) is a reserve created at the time of buy back of preference shares by the company in order to ensure no harm to company's capital base. CRR is created out of securities premium and free reserves.

VISHNU HARIT (Assistant manager (management trainee)) (59 Points)
Replied 05 September 2011

helo dear , there are mainly two types of reserves which is created in the books for some speceial perposes.

GENERAL RESERVE : is created from the current period profit's .In which generaly some money is set asside for future distribution as dividend,

and some time this reserve is credited an amount for complince of some legal provision as % of current profit ,for example

1. for paying the dividend in excess of some pre defined % ( like on above 20% of current profit )

2. for retaining some fix amount in lock in period .

this reserve is utilised mainly for issuing the fully paid up shares to its present shareholders as BONUS SHARES

CAPITAL RESERVE ; is created from the past rofits or from the re construction of capital structure of the organisation

or by the transaction of sale of old fixed assets or by the revaluation of assets & liability ,etc.

this reserve is utilised mainly in future for having finacial help in rehabilitisation of properties i.e. assets of organisation and setting off capital losses.

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Pankaj Arora (Learner) (3134 Points)
Replied 05 September 2011

Thank you guys and happy teacher’s day….

CA PRAVEEN SINGH (MANAGER ACCOUNTS) (2277 Points)
Replied 05 September 2011

Agree with all above....CRR capital Redemption Reserve is created &used for redemption of Redeemable Pfererence Share or Debenture.capital Reserve is created out of capital profit,which is not in normal cource of business,and used for specicific purpose.but Revenue Reserve is created in normal cource of business,& used for normal cource of business.