The funds constituting the capital reserve account are not used to pay dividends, repurchase shares or engage in other capital return programs. So, No Treatment needs to be carried out in Cash Flow Statement for Capital Reserve. ... The gain on sale of fixed asset is transferred to capital reserve .

Understanding Capital Reserve in Cash Flow Statement
Capital reserves are created from specific gains or profits that are not earned through the regular operations of a business. They typically arise from activities such as the revaluation of fixed assets, premium on shares, or gains from asset sales. Here’s how capital reserves are treated in the cash flow statement:
1. Non-Cash Nature
- Capital reserves do not involve cash transactions directly.
- They reflect changes in equity rather than cash inflows or outflows.
2. Cash Flow Statement Classification
- Capital reserves are not included in the cash flow from operating activities.
- They are also excluded from cash flow from investing and financing activities.
3. Impact on Financial Statements
- While capital reserves increase the equity section of the balance sheet, they do not affect cash flow directly.
- The increase in capital reserves may indicate a stronger financial position but does not translate to actual cash available for operations.
4. Disclosure Requirements
- Companies should disclose capital reserves in the notes to the financial statements.
- This helps stakeholders understand the nature of reserves and their implications on overall financial health.
5. Importance for Stakeholders
- Investors and analysts look at capital reserves to assess the company’s ability to reinvest in growth opportunities.
- Capital reserves can indicate retained earnings that may be used for future expansion or debt repayment.
In summary, capital reserves play a role in the equity section of the balance sheet but do not directly impact the cash flow statement due to their non-cash nature. Proper disclosure is essential for clarity to stakeholders.