0Students often make a mistake and are generally confused about the Reserve Capital and Capital Reserve. Both of these terms though sound similar but are totally different.
Here is the core difference between Reserve Capital and Capital Reserve:
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The profit earned by the company through special transaction, that is not available for distributing dividend to shareholders is known as Capital Reserve. Whereas, The part of uncalled capital, that is called up only on the event of company's liquidation is known as Reserve Capital.
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Capital Reserve is created out of Capital Profits like profit on sale of Fixed Assets. Whereas, Reserve Capital is created out of the Authorised Capital.
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Capital Reserve is shown in the Equity & Liabilities sideof the Balance Sheet under the head "Reserves and Surplus". Whereas, Reserve Capital is not disclosed in the Balance Sheet.
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The amount of Capital Reserve is used for writing off fictitious assets, capital losses, etc. Whereas, Reserve Capital is used only at the time of liquidation of the company.
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It is compulsory for every company to create a Capital Reserve, but it is not compulsory to create a Reserve Capital.
So above was the key differences between Capital Reserve and Reserve Capital. Hope this helps each and every one of you.
All The Best!!
Regards,
Ayushman Verma
