What is difference between capital reserve and reserve capital

Question

Answer

capital reserve is out of capital profits and reserve capital is the uncalled subscribed capital which is to be called up by the company at the time of winding up i.e; at the time of liquidation of assets

Answer

'Capital Reserve” means the part of profit reserved by the company for a particular purpose such as to finance long-term projects or to write off capital expenses. If we reverse the words, then we get a new term “Reserve Capital”. The two terms might seem alike to a layman, but these are not one and the same thing, as they carry different meanings. Reserve Capital shows the part of the authorized capital that has not yet called up by the company and is available for drawing, if necessary.

Answer

yaa it's correct

Answer

Difference between Capital Reserve and Reserve Capital

Capital Reserve and Reserve Capital are two terms that are often used in the financial world. While they may sound similar, they actually refer to different concepts and have distinct purposes. In this explanation, we will delve into the details of each term and highlight their differences.

1. Capital Reserve:
Capital Reserve is a part of the company's accumulated profits that is set aside for specific purposes or contingencies. It is not available for distribution as dividends to shareholders. Here are some key points about Capital Reserve:

- Purpose: Capital Reserve is created to strengthen the financial position of a company and provide a cushion for unexpected expenses or future investments.
- Source of Capital Reserve: It is usually generated from profits earned by the company over time.
- Utilization: Capital Reserve is utilized for various purposes such as funding expansion projects, replacing or acquiring assets, paying off debts, or meeting any financial emergencies.
- Legal Requirements: In some jurisdictions, there might be legal requirements for companies to set aside a certain percentage of their profits as Capital Reserve.
- Accounting Treatment: Capital Reserve is shown as a separate line item on the balance sheet, reducing the retained earnings of the company.

2. Reserve Capital:
Reserve Capital, on the other hand, refers to the portion of a company's authorized share capital that has not been issued to shareholders. It represents the potential capital that the company can raise in the future if needed. Consider the following points regarding Reserve Capital:

- Purpose: Reserve Capital is created to provide flexibility to the company in case it requires additional funds in the future.
- Creation of Reserve Capital: It is usually established at the time of the company's formation and is mentioned in its Memorandum of Association.
- Utilization: Reserve Capital can be utilized by the company when authorized by its shareholders and in accordance with legal and regulatory requirements.
- Conversion to Share Capital: Reserve Capital can be converted into issued share capital when the company decides to raise additional funds by issuing new shares.
- Accounting Treatment: Reserve Capital is not shown as a separate line item on the balance sheet, as it represents the unissued portion of the authorized share capital.

Conclusion:
In summary, the main difference between Capital Reserve and Reserve Capital lies in their purpose and origin. Capital Reserve is a portion of accumulated profits set aside for specific purposes, while Reserve Capital represents the unissued portion of a company's authorized share capital. Both concepts contribute to the financial stability and flexibility of a company, but their usage and accounting treatment differ significantly.

Answer

thank-you

Top Courses for CA FoundationView all

Quantitative Aptitude for CA Foundation

Accounting for CA Foundation

Business Laws for CA Foundation

Business Economics for CA Foundation

Mock Tests & Past Year Papers for CA Foundation

Top Courses for CA Foundation

Top Courses for CA Foundation

Related Content

CA Foundation Courses

Other Courses

How To Prepare?

Other Exams

Company