Capital Reserve- Reserve created by the accumulated capital
surplus( not the revenue surplus) of the firm e.g an upward
revaluation of assets by a firm to reflect its assets at
the current market values after appreciation.
Reserve Capital- Part of the authorized capital of a firm
which has not yet called up and is available for drawing in
case of need.
Capital reserve is created from the capital gains.
reserve capital meens not called capital yet out of the par
value of share. The share holder has the obligation to the
reserve capital to company, when company called.
RESERVE CAPITAL: Part of the authorized capital of a firm
that has not been called up and is, therefore, available
for drawing in case of a need.
CAPITAL RESERVE: capital reserve Resource created by the
accumulated capital surplus (not revenue surplus) of a
firm, such as by an upward revaluation of its assets to
reflect their current market value after appreciation.
Allocating such sums to capital reserve means they are
permanently invested and will not be paid as dividends.
If the board of directors feels that in future the company
may not need the share capital which is not yet called up,
the company may pass a special resolution in the general
meeting of the shareholders stating that it will not demand
for the uncancelled amount on shares unless and until the
company is liquidated. This particular amount of
uncancelled share capital in this case is known as RESERVED
If we consider RESERVED CAPITAL from the view point of
creditors, it becomes a very big security. But from the
view point of the shareholders, this may be considered as a
liability. Offcourse, the amount is not called up till the
company's liquidation; thus, so far shareholders are not
THERE MUST BE A PROVISION IN THE ARTICLES OF ASSOCIATION OF
A COMPANY REGARDING RESERVED CAPITAL.
Lets talk about CAPITAL RESERVE now. Capital reserve is a
fund created from a special type of profit. Plz note that
revenue profit is NOT considered a part of this one.
Capital reserve examples are as follows:
1. Share premium received for issuing shares at premium.
2. Debenture premium
3. Profit realised after revaluation of company assets.
Normally, capital reserve is utilised to write off
Capital reserve is one type of special fund which is created
after the board meeting with special consideration that the
share holders will not demand for the same and it is also
not withdrawn at the time of liquidition. It is created at
the time of revaluation of assets and only part of Capital
gains not the revenue gain.
While the rreserved capital is accumulated surplus by the
firm and can be utilized when needed. This has one advantage
that it can be withdrawn at the time of liquidation and can
be converted into cash.