1.

Explain Revenue Reserve & Capital Reserve.

Answer»

1. Revenue Reserve: Revenue reserve are usually created out of business profits which are available for distribution of dividend. It is further classified in to: 

a. Specific Reserve: An amount set aside for meeting a specific purpose or objective is called specific reserve. 

Eg: Debenture redemption reserve, dividend equalisation reserve, Investment fluctuation reserve, etc. 

b. General Reserve: The amount kept aside is used for the overall improvement of business, it is called general reserve. 

Eg: Contingency reserve 

2. Capital Reserve: 

A reserve created out of capital profit is called capital reserve. Usually such reserves are not available for dividend to shareholders. The following are some of the capital profit usually kept as capital reserve. 

  • Profit on sale of fixed assets 
  • Premium on issue of shares 
  • Profit prior to incorporation 
  • Profit on reissue of shares 
  • Profit made on purchase of a business.


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