State the difference between capital reserve and revenue reserve.

The major differences between capital reserve and revenue reserve are as follows −

Capital reserve

• Funds to create financial long term projects/to write off capital expenses.

• Created for non – trading activities.

• Capital profit of the firm act as source of capital

• main aim is to adhere statutory requirements/accounting principles

• long term purpose

• can’t be received in monetary value

• used for legal purpose

• utilized for purpose for which it is created

• not available for dividend distribution

Revenue capital

• Total amount retained to meet future contingencies.

• Created for trading activities.

• Revenue profit of the form act as a source.

• Main aim is to meet unforeseen contingencies and improve entity’s financial position.

• Short term and mid-term purpose.

• Can received monetary value.

• Portion is always re-invested.

• Used for any or particular purpose only based type of reserves.

• Dividend is distributed.

Mandalika

Published on 25-Jul-2020 06:46:05

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