Introduction:

Capital reserve and reserve capital are two important terms in accounting. They are both used to represent a company's financial position. However, they have different meanings and purposes. In this article, we will discuss the key differences between capital reserve and reserve capital.

Capital Reserve:

Capital reserve is a type of reserve that is created when a company sells its assets at a price higher than their book value. It is a non-distributable reserve, which means that it cannot be distributed as dividends to shareholders. Capital reserve is created to strengthen the financial position of the company and to meet its future capital requirements.

Reserve Capital:

Reserve capital, on the other hand, is the amount of authorized capital that a company has not yet issued. It is a part of the company's share capital that is not yet subscribed by the shareholders. Reserve capital can be used by a company at any time to issue new shares without going through the process of increasing the authorized capital.

Differences between Capital Reserve and Reserve Capital:

The following are the key differences between capital reserve and reserve capital:

1. Definition: Capital reserve is created when a company sells its assets at a price higher than their book value, while reserve capital is the amount of authorized capital that a company has not yet issued.

2. Usage: Capital reserve is created to strengthen the financial position of the company and to meet its future capital requirements, while reserve capital can be used by a company at any time to issue new shares without going through the process of increasing the authorized capital.

3. Distributability: Capital reserve is a non-distributable reserve, which means that it cannot be distributed as dividends to shareholders. Reserve capital, on the other hand, is a part of the company's share capital that can be distributed as dividends to shareholders.

4. Creation: Capital reserve is created when a company sells its assets at a price higher than their book value. Reserve capital is created when a company authorizes a certain amount of share capital, but does not issue all of it.

Conclusion:

In conclusion, capital reserve and reserve capital are two important terms in accounting that have different meanings and purposes. Capital reserve is created to strengthen the financial position of the company and to meet its future capital requirements, while reserve capital can be used by a company to issue new shares without going through the process of increasing the authorized capital. It is important for companies to understand the differences between these two terms in order to make informed financial decisions.