Capital Reserve vs. Reserve Capital: What's the Difference?
Edited by Aimie Carlson || By Janet White || Published on November 26, 2023
Capital reserve is created from non-operational profits, while reserve capital is the portion of subscribed capital not called up.
Key Differences
Capital reserve is formed from profits not arising from normal business activities, like profits from asset sales, revaluation surpluses, or premiums on the issue of shares or debentures. Reserve capital, however, is the part of the authorized capital which a company has not yet called up and is reserved for future needs.
Capital reserve is typically used for specific purposes, like writing off capital losses or issuing bonus shares. Reserve capital is used as a financial cushion in case of emergency or for future expansion, and can only be called upon in specific circumstances like winding up of the company.
Capital reserve is recorded under shareholders' equity and represents funds that are not distributable as dividends. Reserve capital is not recorded as such on the balance sheet but is part of the overall authorized capital that has not been called up.
The use of capital reserve is governed by the company's policy and regulatory framework, often used for non-recurring expenses or strengthening the financial position. Reserve capital, on the other hand, is subject to legal restrictions and can only be utilized under certain conditions.
Capital reserve reflects a company’s financial strength from non-operational activities and can be a sign of prudent financial management. Reserve capital represents a strategic reserve of funds, highlighting a company's potential for future growth and financial stability.
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Comparison Chart
Definition
Funds from non-operational profits
Unissued portion of authorized capital
Purpose
For specific uses, like capital losses
Reserved for emergencies or future use
Financial Statement
Part of shareholders' equity
Not directly shown, part of unissued capital
Usage Restrictions
Governed by company policy
Legal restrictions, used in specific situations
Indication
Financial strength from non-core activities
Potential for future growth and stability
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Capital Reserve and Reserve Capital Definitions
Capital Reserve
Funds set aside from profits not related to the company's primary business operations.
The sale of a company asset contributed to the capital reserve.
Reserve Capital
The part of authorized capital not yet called up and available for future issuance.
The company's reserve capital stood untouched, providing financial reassurance.
Capital Reserve
Reserve for specific purposes, not for dividend distribution.
The company used its capital reserve to write off a previous investment loss.
Reserve Capital
A portion of a company's capital that remains unutilized in normal circumstances.
The reserve capital remained as a buffer for unforeseen financial needs.
Capital Reserve
Funds generated from extraordinary items or events.
A significant revaluation surplus was added to the capital reserve.
Reserve Capital
The reserve of authorized share capital not yet offered to shareholders.
The board considered tapping into the reserve capital for the new project.
Capital Reserve
A reserve created from non-recurring income or gains.
The capital reserve was bolstered by the premium received on issuing new shares.
Reserve Capital
Strategic capital reserve for long-term stability and growth.
Maintaining a sizable reserve capital was part of the company's prudent financial strategy.
Capital Reserve
A reserve reflecting financial gains outside of regular business activities.
The capital reserve was enhanced by the gain from a subsidiary's divestiture.
Reserve Capital
Unissued capital kept for potential future use or emergencies.
Reserve capital was held back for potential expansion opportunities.
FAQs
Can Capital Reserve be used for dividends?
Generally, it's not used for paying dividends.
How is Capital Reserve formed?
Through capital profits, like premiums on the sale of shares.
Why is Capital Reserve important?
It supports long-term financial stability and growth.
Can Capital Reserve be distributed as cash?
Typically, it's not distributed as cash to shareholders.
Can Capital Reserve be used for writing off capital losses?
Yes, it's often used for this purpose.
Is Capital Reserve different from Revenue Reserve?
Yes, it's formed from capital profits, not from operational revenue.
Can Reserve Capital be used for regular business activities?
No, it's reserved for specific situations like liquidation.
Is Reserve Capital shown in the balance sheet?
No, it's not shown on the balance sheet.
What is Capital Reserve?
It's a reserve created from capital profits, not from revenue earnings.
Is Capital Reserve reflected in the balance sheet?
Yes, under shareholders' equity.
What are examples of Capital Reserve?
Sale of assets, revaluation of assets, and share premiums.
How does Capital Reserve impact a company's value?
It can positively affect the company's financial health and valuation.
Can Reserve Capital be released to shareholders?
Only in the event of liquidation.
How is Reserve Capital created?
Through authorization in the company's articles of incorporation.
Is Reserve Capital common in all companies?
Its usage varies based on company structure and jurisdiction.
Does Reserve Capital affect dividend distribution?
No, it does not directly affect dividend distribution.
What is Reserve Capital?
It's the portion of subscribed capital that is not called up, except in the event of liquidation.
Can Reserve Capital be converted into cash?
It can be converted into cash only during liquidation.
How does Reserve Capital relate to a company's solvency?
It provides a safety net, enhancing solvency in challenging times.
What is the purpose of Reserve Capital?
To provide additional security to creditors during liquidation.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
